<PAGE>
EXHIBIT 2.1
EXECUTION VERSION
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MTI TECHNOLOGY CORPORATION,
A DELAWARE CORPORATION,
PURCHASER
AND
COLLECTIVE TECHNOLOGIES, LLC,
A DELAWARE LIMITED LIABILITY COMPANY,
SELLER
Dated June 6, 2006
Morrison & Foerster LLP
19900 MacArthur Boulevard
Irvine, California 92612
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TABLE OF CONTENTS
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ARTICLE 1. THE
TRANSACTION..............................................
1
1.1
Purchased
Assets................................................ 1
1.2
Excluded
Assets.................................................
3
1.3
Assumed
Liabilities.............................................
3
1.4
Excluded
Liabilities............................................
4
1.5
Non-Assignable
Assets........................................... 5
ARTICLE 2. CONSIDERATION
FOR TRANSFER................................... 6
2.1
Purchase
Price..................................................
6
2.2
Purchase Price
Adjustments...................................... 7
2.3
Allocation of
Purchase Price.................................... 8
2.4
Transfer Taxes;
Prorations...................................... 9
ARTICLE 3. CLOSING AND
CLOSING DELIVERIES............................... 9
3.1
Closing; Time
and Place......................................... 9
3.2
Deliveries by
Seller............................................ 9
3.3
Deliveries by
Purchaser......................................... 10
3.4
Delivery by
Purchaser and Seller................................ 11
ARTICLE 4. REPRESENTATIONS
AND WARRANTIES OF SELLER..................... 11
4.1
Organization,
Good Standing, Qualification...................... 11
4.2
Charter
Documents; Books and Records............................
12
4.3
Capitalization..................................................
12
4.4
Authority;
Binding Nature of Agreements......................... 12
4.5
No Conflicts;
Required Consents................................. 12
4.6
Subsidiaries....................................................
13
4.7
Financial
Statements............................................ 13
4.8
Absence of
Undisclosed Liabilities.............................. 13
4.9
Absence of
Changes.............................................. 13
4.10
Transactions with
Affiliates.................................... 14
4.11
Account
Receivables.............................................
14
4.12
Inventory.......................................................
14
4.13
Material
Contracts..............................................
14
4.14
Title; Sufficiency;
Condition of Assets......................... 17
4.15
Real Property
Leases............................................ 17
4.16
Intellectual
Property........................................... 17
4.17
Customers,
Distributors and Suppliers........................... 19
4.18
Seller Products,
Services and Warranty.......................... 21
4.19
Employees and
Consultants....................................... 21
4.20
Seller Benefit
Plans............................................ 22
4.21
Compliance with
Laws............................................ 22
4.22
Governmental
Approvals.......................................... 23
4.23
Proceedings and
Orders.......................................... 23
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4.24
Environmental
Matters.............................................. 23
4.25
Taxes..............................................................
24
4.26
Brokers............................................................
25
4.27
No Other
Agreement.................................................
25
4.28
No Other
Representations and Warranties............................
25
4.29 Private
Placement..................................................
25
ARTICLE 5. REPRESENTATIONS
AND WARRANTIES OF PURCHASER..................... 27
5.1
Organization and
Good Standing..................................... 27
5.2
Authority;
Binding Nature of Agreements............................
27
5.3
No Conflicts;
Required Consents.................................... 28
5.4
Brokers............................................................
28
5.5
SEC Filings,
Financial Statements.................................. 28
5.6
Shares.............................................................
28
ARTICLE 6. PRE-CLOSING
COVENANTS........................................... 29
6.1
Seller's Conduct
of the Business Prior to Closing.................. 29
6.2
Restrictions on
Seller's Conduct of the Business Prior to Closing.. 29
6.3
No
Solicitation....................................................
31
6.4
Certain
Notifications..............................................
32
6.5
Updating the
Disclosure Schedules.................................. 32
6.6
Access to
Information..............................................
33
6.7
Best
Efforts.......................................................
33
6.8
Consents...........................................................
33
6.9
Indemnity..........................................................
33
ARTICLE 7. POST CLOSING
COVENANTS.......................................... 34
7.1
Seller
Intellectual Property.......................................
34
7.2
Cooperation........................................................
34
7.3
Change of
Corporate Name...........................................
35
7.4
Records and
Documents..............................................
35
7.5
Collection of
Receivables.......................................... 35
7.6
Noncompetition
Agreement........................................... 36
7.7
Nondisclosure......................................................
37
7.8
Listing of
Shares..................................................
38
ARTICLE 8.
EMPLOYEES.......................................................
38
8.1
Transferred
Employees..............................................
38
8.2
Employee Benefit
Arrangements...................................... 38
8.3
Post-Closing
Employee Benefits..................................... 38
8.4
Compliance with
Legal Requirements and Other Obligations........... 39
8.5
No Benefit to
Seller Employees Intended............................ 39
ARTICLE 9. CONDITIONS TO
CLOSING........................................... 40
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9.1
Conditions to
Purchaser's Obligation to Close................... 40
9.2
Conditions to
Seller's Obligation to Close...................... 41
9.3
Conditions to
Obligations of Each Party to Close................ 41
ARTICLE 10.
TERMINATION..................................................
42
10.1
Circumstances for
Termination................................... 42
10.2
Effect of
Termination........................................... 42
10.3
Fees for
Termination............................................
42
ARTICLE 11.
INDEMNIFICATION..............................................
43
11.1
Survival of
Representations and Warranties...................... 43
11.2
Indemnification by
Seller....................................... 43
11.3
Indemnification by
Purchaser.................................... 43
11.4
Procedures for
Indemnification.................................. 43
11.5
Limitations on
Indemnification.................................. 45
11.6
Sole
Remedy.....................................................
46
11.7
Set
Off.........................................................
46
ARTICLE 12. MISCELLANEOUS
PROVISIONS..................................... 46
12.1
Expenses........................................................
46
12.2
Further
Assurances..............................................
46
12.3
Amendments and
Waivers.......................................... 46
12.4
Notices.........................................................
46
12.5
Governing
Law................................................... 47
12.6
Dispute
Resolution..............................................
47
12.7
Exhibits and
Schedules.......................................... 48
12.8
Assignments
Prohibited; Successors and Assigns.................. 48
12.9
No Third-Party
Beneficiaries.................................... 48
12.10
Counterparts....................................................
48
12.11
Entire Agreement................................................
48
12.12
Interpretation..................................................
48
12.13
Number of Days..................................................
49
12.14
Construction....................................................
49
12.15
Provisional Relief; Specific Performance........................
49
12.16
Recovery of Fees by Prevailing Party............................
49
12.17
Disclosure Letter...............................................
50
12.18 Time
of the Essence.............................................
50
12.19
Confidentiality; Publicity......................................
50
12.20
Cumulative Remedies.............................................
50
12.21
Liquidated Damages..............................................
50
12.22
Corporate Securities Law........................................
51
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EXHIBITS, SCHEDULES AND APPENDICES
Exhibits
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Exhibit A
Certain Definitions
Exhibit 2.1(a)(ii) Promissory
Note
Exhibit 2.1(a)(iv)
Warrant
Exhibit 3.2(a)
General Assignment and Bill of Sale
Exhibit 3.2(b)
Assignment and Assumption
Exhibit 3.2(e)
Lock-Up Agreement
Exhibit 3.2(f)
Employment Agreements
Exhibit 3.4
Registration Rights Agreement
Exhibit 6.9
Indemnification Agreements
Exhibit 7.1
Acknowledgments of License
Exhibit 9.1(d)
Estoppel Letters
Exhibit 9.1(e)
Opinion of Seller's Counsel
Exhibit 9.2(e)
Opinion of Purchaser's Counsel
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Schedules
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Schedule 1.1(a)
Receivables
Schedule 1.1(b)
Inventory
Schedule 1.1(c)
Machinery and Equipment
Schedule 1.1(d)
Owned and Leased Vehicles
Schedule 1.1(e)
Personal Property
Schedule 1.1(f)
Leased Real Property
Schedule 1.1(g)
Personal Property Leases
Schedule 1.1(h)
Intellectual Property
Schedule 1.1(i)
Deposits and Advances
Schedule 1.1(j)
Rebates and Credits
Schedule 1.1(k)
Seller Contracts
Schedule 1.1(l)
Governmental Approvals
Schedule 1.1(m)
Claims
Schedule 1.2(e)
Excluded Personal Property
Schedule 1.3
Assumed Liabilities
Schedule 4
Seller Disclosure Schedule
Schedule 5
Purchaser Disclosure Schedule
Schedule 8.1
Transferred Employees
Schedule 8.3(b)
Restricted Stock and Option Issuances
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ASSET PURCHASE AGREEMENT
THIS ASSET
PURCHASE AGREEMENT (the "Agreement") is made and entered into
this sixth day of June, 2006, by and between MTI Technology
Corporation, a
Delaware corporation (the "Purchaser"), and Collective
Technologies, LLC, a
Delaware limited liability company (the "Seller"). Certain
capitalized terms
used in this Agreement are defined on Exhibit A hereto.
RECITALS
WHEREAS,
Seller is engaged in IT infrastructure services, including
architectural consulting, system implementation and staff
augmentation (the
"Business"); and
WHEREAS,
Purchaser desires to purchase from Seller and Seller desires to
sell to Purchaser substantially all of the assets, properties,
rights and claims
of, or related to, the Business on the terms and conditions set
forth herein.
NOW,
THEREFORE, in consideration of the foregoing recitals and the
mutual
representations, warranties, covenants and promises contained
herein, the
adequacy and sufficiency of which are hereby acknowledged, the
parties hereto
agree as follows:
AGREEMENT
ARTICLE 1. THE TRANSACTION
1.1
PURCHASED ASSETS. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, transfer, convey,
assign, grant
and deliver to Purchaser, and Purchaser shall purchase from Seller,
all of
Seller's right, title and interest in, to and under the assets,
properties,
goodwill and rights of Seller of every nature, kind and
description, tangible
and intangible, wherever located, whether or not carried on the
books of Seller
(other than the Excluded Assets) (collectively, the "Purchased
Assets"),
including the following:
(a) Receivables. Other than amounts owed under the Accenture
Agreements (as defined below), all accounts and notes receivable,
negotiable
instruments and chattel papers (the "Receivables"), including the
Receivables
listed on Schedule 1.1(a);
(b) Inventory. All inventory of Seller products and its
components,
wherever located and whether held by Seller or third parties,
including all raw
materials, work in process, samples, packaging, supplies, service
parts,
purchased parts and goods and the finished goods listed on Schedule
1.1(b)
(collectively, the "Inventory") and any and all rights to market
and sell all
such Inventory;
(c) Machinery and Equipment. All tools, dies, jigs, molds,
patterns,
machinery and equipment (including manufacturing assembly and test
equipment),
wherever located and whether held by Seller or third parties (the
"Machinery and
Equipment"), including the Machinery and Equipment listed on
Schedule 1.1(c);
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(d) Owned and Leased Vehicles. All vehicles owned by Seller and
all
rights in, to and under vehicle leases to which Seller is a party
(collectively,
the "Owned and Leased Vehicles"), including the Owned and Leased
Vehicles listed
on Schedule 1.1(d);
(e) Personal Property. All personal property, office furnishings
and
furniture, display racks, shelves, decorations, supplies and other
tangible
personal property (the "Personal Property"), including the Personal
Property
listed on Schedule 1.1(e);
(f) Leased Real Property. All rights in, to and under the real
estate leases listed on Schedule 1.1(f) (the "Real Property
Leases"), together
with all of Seller's right, title and interest in and to all land,
buildings,
structures, easements, appurtenances, improvements (including
construction in
progress) and fixtures located thereon (the "Leased Real
Property");
(g) Personal Property Leases. All rights in, to and under leases
of
personal property to which Seller is a party (the "Personal
Property Leases"),
including the Personal Property Leases listed on Schedule
1.1(g);
(h) Intellectual Property. All Seller Intellectual Property,
including the Seller Intellectual Property listed on Schedule
1.1(h);
(i) Deposits and Advances. All performance and other bonds,
security
and other deposits, advances, advance payments, prepaid credits and
deferred
charges (the "Deposits and Advances"), including the Deposits and
Advances
listed on Schedule 1.1(i);
(j) Rebates and Credits. All rights in, to and under claims for
refunds, rebates or other discounts due from suppliers or vendors
and rights to
offset in respect thereof (the "Rebates and Credits"), including
those Rebates
and Credits listed on Schedule 1.1(j);
(k) Seller Contracts. Other than the Accenture Agreements, all
rights in, to and under any and all Contracts to which Seller is a
party or may
be bound or receive benefits or receive and/or grant rights in
and/or to the
Seller Intellectual Property or by which the Purchased Assets or
Assumed
Liabilities may be affected (collectively, "Seller Contracts"),
including those
listed on Schedule 1.1(k); provided, that, for the avoidance of
doubt, Seller
Contracts shall not include any Contracts solely between or among
Edward Ateyeh,
Jr., Wade Saadi and Edgar Saadi if Seller is not a party to such
Contracts and
could not be bound or receive benefits thereunder, and if the
Purchased Assets
or Assumed Liabilities could not be affected thereby and shall not
include the
Agreement Among Shareholders dated on or about the date hereof
among Seller,
Pencom Systems Incorporated, Edward Ateyeh, Jr., Wade Saadi and
Edgar Saadi;
(l) Governmental Approvals. All Governmental Approvals (and
pending
applications therefor), including the Governmental Approvals listed
on Schedule
1.1(l);
(m) Claims. All claims, choses-in-action, rights in action,
rights
to tender claims or demands to Seller's insurance companies, rights
to any
insurance proceeds, and other similar claims (the "Seller Claims"),
including
the Seller Claims listed on Schedule 1.1(m);
(n) Books and Records. All books, files, papers, agreements,
correspondence, databases, information systems, programs, software,
documents,
records and documentation
2
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thereof related to any of the Purchased Assets or the Assumed
Liabilities, or
used in the conduct of the Business, on whatever medium (the "Books
and
Records"); and
(o) Other Assets. All other assets, properties, rights and
claims
related to the operations or conduct of the Business or which arise
in or from
the conduct thereof.
1.2
EXCLUDED ASSETS. Notwithstanding Section 1.1, the following assets
of
Seller (the "Excluded Assets") shall not be included in the
Purchased Assets:
(a) Cash. Cash, cash equivalents and marketable securities;
(b) Certain Debt. Any intercompany or intracompany receivable
cash
balances owed to Seller by any of its Affiliates;
(c) Entity Documents. Seals, certificates of organization,
minute
books, member transfer records, or other similar records related to
the
organization of Seller;
(d) Employee Benefit Contracts. Seller Benefit Plans and
contracts
of insurance for employee group medical, dental and life insurance
plans;
(e) Certain Other Property. The assets listed on Schedule
1.2(e);
(f) Accenture Agreements. Any rights or obligations under
Seller's
License Agreement (including the acknowledgement thereof) with
Morgan Stanley &
Co. Incorporated, dated July 16, 2004, and Seller's Asset Purchase
Agreement
with Accenture, dated June 21, 2004, including the incorporated
License
Agreement between Accenture and Seller (including the
acknowledgement thereof
and any other documents or contracts executed and delivered by
Seller in
connection therewith (collectively, the "Accenture Agreements"),
true and
correct copies of which have been provided to Purchaser, including
without
limitation, any amounts payable to Seller thereunder;
(g) Insurance Policies. All insurance policies (except to the
extent
specified in Section 1.1(m)) and all refunds for unearned
premiums;
(h) Records. All personnel, financial, tax, and accounting
records
and other records that Seller is required by law to retain in its
possession;
(i) Deposits. Any Deposits and Advances, Rebates and Credits or
Seller Claims related to any Excluded Liability; and
(j) Rights Under Certain Agreements. All rights under a
Transaction
Agreement.
1.3
ASSUMED LIABILITIES. Subject to the terms and conditions of
this
Agreement, at the Closing, Seller shall assign, and Purchaser shall
assume only
the Assumed Liabilities. Thereafter, Purchaser shall pay and
discharge all such
Assumed Liabilities as and when such Assumed Liabilities become due
and owing.
For the purposes of this Agreement, the "Assumed Liabilities" shall
mean only
the following Liabilities of Seller:
3
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(a) Any Liability arising at or after the Closing under the
Seller
Contracts;
(b) Any Liability reflected on the Interim Balance Sheet or
incurred
after the Interim Balance Sheet Date in the ordinary course of
business, to the
extent it remains as a Liability of the Business at the Closing and
is reflected
on the Audited Closing Balance Sheet;
(c) Any Liability for accrued but unused vacation time of
Transferred Employees reflected on the Audited Closing Balance
Sheet ("Vacation
Accrual");
(d) One-half of any Transfer Taxes; and
(e) The Liabilities of Seller specifically listed on Schedule
1.3.
1.4
EXCLUDED LIABILITIES. Except for the Assumed Liabilities,
Purchaser
shall not assume and shall not be liable or responsible for any
Liability of
Seller or any Affiliate of Seller (collectively, the "Excluded
Liabilities").
Without limiting the foregoing, Purchaser shall not be obligated to
assume, and
does not assume, and hereby disclaims any of the following
Liabilities of Seller
or its Affiliates:
(a) Any Liability attributable to any assets, properties or
Contracts that are not included in the Purchased Assets, including
the Accenture
Agreements, except Liabilities attributable to Non-Assignable
Assets, for which
Seller and Purchaser have reached a mutually acceptable arrangement
pursuant to
Section 1.5(b);
(b) Any Liability for breaches of any Seller Contract prior to
the
Closing or any Liability for payments or amounts due under any
Seller Contract
prior to the Closing;
(c) Any Liability for Taxes attributable to or imposed upon
Seller
or its Affiliates, or attributable to or imposed upon the Purchased
Assets for
the Pre-Closing Period, including one-half of any Transfer
Taxes;
(d) Any Liability arising from accidents, occurrences,
misconduct,
negligence, breach of fiduciary duty or statements made or omitted
to be made
(including libelous or defamatory statements) prior to the Closing,
whether or
not covered by workers' compensation or other forms of
insurance;
(e) Any Liability arising as a result of any legal or equitable
action or judicial or administrative Proceeding initiated at any
time, to the
extent related to any action or omission prior to the Closing
relating to (i)
infringement or misappropriation of any Intellectual Property
Rights or any
other rights of any Person (including any right of privacy or
publicity); (ii)
breach of product warranties; (iii) injury, death, property damage
or other
losses arising with respect to or caused by Seller Products or the
manufacturer
or design thereof; or (iv) violations of any Legal Requirements
(including
federal and state securities laws);
(f) Other than any portion thereof specifically included in the
Assumed Liabilities under Section 1.3(b), any Liability arising out
of any
Seller Benefit Plans or any contract of insurance for employee
group medical,
dental or life insurance plans;
4
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(g) Other than the Vacation Accrual and any portion of any
Liability
for making payments to employees specifically included in the
Assumed
Liabilities under Section 1.3(b), any Liability for making payments
of any kind
to employees (including as a result of the Transaction, the
termination of an
employee by Seller, or other claims arising out of the terms of
employment with
Seller) of Seller or with respect to payroll taxes relating to
employees of
Seller;
(h) Any Liability incurred in connection with the making or
performance of this Agreement and the Transaction not reflected on
the Audited
Closing Balance Sheet;
(i) Any Liability not reflected on the Audited Closing Balance
Sheet
for expenses and fees incurred by Seller incidental to the
preparation of the
Transaction Agreements, preparation or delivery of materials or
information
requested by Purchaser, and the consummation of the Transaction,
including all
broker, counsel and accounting fees;
(j) Any Liability for the violation of any Legal Requirement
applicable to Seller, the Purchased Assets or the Assumed
Liabilities prior to
the Closing;
(k) Other than any portion thereof specifically included in the
Assumed Liabilities under Section 1.3(b), any Liability to any
stockholders,
members, or other equity holders;
(l) Any Liability to holders of options to purchase securities
of,
or interests in, Seller or any of its Affiliates; and
(m) Any costs or expenses incurred in connection with shutting
down,
deinstalling or removing equipment not purchased by Purchaser and
any costs or
expenses associated with any Seller Contracts not assumed by
Purchaser
hereunder.
1.5
NON-ASSIGNABLE ASSETS.
(a) Notwithstanding the foregoing, if any of the Seller Contracts
or
other Purchased Assets are not assignable or transferable (each,
a
"Non-Assignable Asset") without the consent of, or waiver by, a
third party
(each, an "Assignment Consent"), either as a result of the
provisions thereof or
applicable Legal Requirements, and any of such Assignment Consents
are not
obtained by Seller prior to the Closing, Seller shall continue its
efforts to
obtain the Assignment Consents after Closing, and, in either case,
this
Agreement and the related instruments of transfer shall not
constitute an
assignment or transfer of such Non-Assignable Assets, and Purchaser
shall not
assume Seller's rights or obligations under such Non-Assignable
Asset (and such
Non-Assignable Asset shall not be included in the Purchased
Assets). Without
limiting Seller's obligations under Section 6.8, Seller shall use
its Best
Efforts to obtain all such Assignment Consents as soon as
reasonably practicable
after the Closing and thereafter assign to Purchaser such
Non-Assignable Assets.
Following any such assignment, such assets shall be deemed
Purchased Assets for
purposes of this Agreement. This Section 1.5(a) shall at all times
remain
subject to Article 9.
(b) After the Closing, Seller shall cooperate with Purchaser in
any
commercially reasonable arrangement designed to provide Purchaser
with all of
the benefits of
5
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the Non-Assignable Assets as if the appropriate Assignment Consents
had been
obtained, including by granting subleases and establishing
arrangements whereby
Purchaser shall undertake the work necessary to perform and meet
the obligations
under Seller Contracts; provided, that Seller shall not be required
to incur any
material Liability, cost or expense in connection therewith.
ARTICLE 2. CONSIDERATION FOR TRANSFER
2.1
PURCHASE PRICE.
(a) Subject to Section 2.2, as full consideration for the sale,
assignment, transfer and delivery of the Purchased Assets by Seller
to
Purchaser, Purchaser shall deliver to Seller at the Closing an
executed
Assignment and Assumption and consideration (together with any
amounts payable
under Section 2.2, the "Purchase Price"), payable in the following
manner:
(i) A wire transfer of immediately available U.S. funds in an
aggregate amount of Six Million Dollars ($6,000,000) (the "Cash
Amount");
(ii) A promissory note in the form of Exhibit 2.1(a)(ii) (the
"Note") in the amount of Two Million Dollars ($2,000,000);
(iii) A certificate for two million two hundred seventy-two
thousand seven hundred twenty-seven (2,272,727) shares
(collectively, the
"Shares") of Purchaser's common stock; and
(iv) A warrant ("Warrant") to purchase one million (1,000,000)
shares of Purchaser's common stock at an exercise price of $1.32
per share in
the form set forth as Exhibit 2.1(a)(iv).
(b) At Closing Purchaser shall discharge liabilities of Seller
to
Pencom Systems, Incorporated included in the Assumed Liabilities
("Affiliate
Liabilities") in an amount equal to the least of (i) amounts
outstanding five
(5) Business Days prior to Closing under that certain Account
Purchase Agreement
(the "Wells Fargo Agreement"), dated November 22, 2004, between
Wells Fargo
Business Credit, Inc. and Seller, (ii) One Million Five Hundred
Thousand Dollars
($1,500,000), or (iii) the aggregate amount outstanding under such
Affiliate
Liabilities less Five Hundred Thousand Dollars ($500,000).
Purchaser shall
discharge any remaining liabilities of Seller to Pencom Systems,
Incorporated
included in the Assumed Liabilities within five (5) Business Days
of the Final
Resolution Date, subject to set off by an amount equal to the Net
Asset
Adjustment, if applicable under Section 2.2(d). All liabilities of
Seller to
Pencom Systems, Incorporated included in the Assumed Liabilities,
including any
amounts discharged pursuant hereto, shall be fully reflected on the
Preliminary
Closing Balance Sheet and the Audited Closing Balance Sheet, and
shall be
subject to and included in the Net Asset Adjustment described
below. Pencom
Systems, Incorporated agrees to the provisions of this Section
2.1(b), including
the set off described in the preceding sentences.
6
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2.2
PURCHASE PRICE ADJUSTMENTS.
(a) Seller shall deliver to Purchaser at least three (3) days
prior
to the expected Closing Date an estimate of the Net Assets of
Seller as of the
Closing Date, calculated in accordance with GAAP and consistent
with the
accounting methods and practices used on the Interim Balance Sheet
(the
"Preliminary Closing Balance Sheet"). The Purchase Price shall be
increased,
dollar for dollar, by the amount by which the Net Assets are
greater than One
Million Dollars ($1,000,000) and shall be decreased, dollar for
dollar, by the
amount by which the Net Assets are less than such amount. The "Net
Assets" of
the Business shall be the excess of (i) the book value of the
Purchased Assets
over (ii) the book value of the Assumed Liabilities, except that no
reserve for
doubtful accounts shall be included in such determination.
(b) As promptly as practicable, but in no event later than one
hundred fifty (150) days following the Closing Date, Purchaser
shall cause the
following to be prepared and delivered to Seller (collectively, the
"Audited
Closing Balance Sheet"): (i) an audited balance sheet of the
Business as of the
Closing Date which reflects the book value of the Purchased Assets
and the
Assumed Liabilities, together with an audit report thereon by an
independent
accounting firm hired by Purchaser ("Purchaser's Accountant"),
prepared in
accordance with GAAP on a basis consistent with the accounting
methods and
practices used on the Interim Balance Sheet; and (ii) a statement
based on such
Audited Closing Balance Sheet which sets forth in detail a
calculation of the
Net Assets of the Business on the Closing Date. Purchaser shall,
and shall cause
the Purchaser's Accountant to, provide Seller and Seller's
accountant ("Seller's
Accountant") any and all work papers used in the preparation of the
Audited
Closing Balance Sheet. Purchaser shall permit Seller to render all
reasonable
assistance in connection with the preparation and audit of the
Audited Closing
Balance Sheet. Except as set forth below, the Audited Closing
Balance Sheet and
the accompanying Net Asset calculation shall be deemed to be and
shall be final,
binding and conclusive on the parties upon the earlier of (the
"Final Resolution
Date"): (A) Seller's delivery of a written notice to Purchaser of
its approval
of the Audited Closing Balance Sheet; (B) the failure of Seller to
notify
Purchaser in writing of a dispute with the Audited Closing Balance
Sheet within
thirty (30) days of the delivery of such documents to Seller ; (C)
the
resolution of all disputes, pursuant to Section 2.2(c), by
Purchaser's
Accountant and Seller's Accountant; and (D) the resolution of all
disputes,
pursuant to Section 2.2(c), by the Independent Accounting Firm.
(c) Seller may dispute any amounts reflected on the Audited
Closing
Balance Sheet by delivery of a written notice to Purchaser (the
"Audited Closing
Balance Sheet Dispute Notice"). If Seller delivers an Audited
Closing Balance
Sheet Dispute Notice to Purchaser, Purchaser's Accountant and
Seller's
Accountant shall attempt to reconcile the parties' differences, and
any
resolution by them as to any disputed amounts shall be final,
binding and
conclusive on the parties. If Purchaser's Accountant and Seller's
Accountant are
unable to reach a resolution within thirty (30) days after the
delivery of the
Audited Closing Balance Sheet Dispute Notice, Purchaser's
Accountant and
Seller's Accountant shall submit their respective determinations
and
calculations and the items remaining in dispute for resolution to
an independent
accounting firm of international reputation mutually acceptable to
Purchaser and
Seller (the "Independent Accounting Firm"). The parties shall cause
the
Independent Accounting Firm to submit a report to Purchaser and
Seller with a
determination regarding the remaining disputed items, within thirty
(30) days
after submission of the matter, and such report
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shall be final, binding and conclusive on Purchaser and Seller. The
fees, costs
and expenses of the Independent Accounting Firm shall be paid by
Purchaser and
Seller in the same proportion that the aggregate amount of such
remaining
disputed items so submitted to the Independent Accounting Firm that
is
unsuccessfully disputed by each such party as finally determined by
the
Independent Accounting Firm bears to the total amount of such
remaining disputed
items.
(d) The Purchase Price shall be increased or decreased on a
dollar-for-dollar basis by the amount by which the actual Net
Assets of the
Business determined in accordance with Sections 2.2(b) and 2.2(c)
is greater or
less than the amount of the estimated Net Assets of the Business
determined in
accordance with Section 2.2(a). Any such adjustment to the Purchase
Price shall
be referred to as a "Net Asset Adjustment." If the Purchase Price
increases as a
result of the Net Asset Adjustment, Purchaser shall pay any
additional amount
due to Seller by wire transfer of immediately available funds
within five (5)
Business Days of the Final Resolution Date. If the Purchase Price
declines as a
result of the Net Asset Adjustment, Purchaser, at Purchaser's sole
option, may:
(i) deduct the amount by which the Purchase Price declines from the
amount owed
under the Note; (ii) request within five (5) Business Days of the
Final
Resolution Date that Seller, and upon such request Seller shall,
return the
amount by which the Purchase Price declines to Purchaser by wire
transfer of
immediately available funds within five (5) Business Days of such
request or
(iii) deduct the amount by which the Purchase Price declines from
the amount, if
any, owed to Pencom Systems Incorporated under Section 2.1(b). The
party
required to make a payment under this Section 2.2 shall also pay
interest on
such amount required to be paid from and including the Closing Date
but
excluding the date of payment thereof at the prime rate published
by The Wall
Street Journal, as that rate may vary from time to time, or if no
longer
published, a comparable rate.
(e) The Purchase Price shall be increased by an amount equal to
the
Dollar value set forth next to the name of any person or persons on
Schedule
8.3(b) who has exercised any option to acquire equity securities of
Seller on or
after the date of this Agreement and will, therefore, not receive
any grant of
restricted stock or options under Section 8.3(b). Such amount shall
be set off
against any Net Asset Adjustment and paid concurrent with the
payment thereof as
set forth in Section 2.2(d) above.
2.3
ALLOCATION OF PURCHASE PRICE. As soon as practicable after the
applicable party has received cash or credit for the Net Asset
Adjustment
pursuant to Section 2.2, Purchaser shall provide to Seller
Purchaser's
allocation of the Purchase Price, as adjusted pursuant to Section
2.2, among the
various classes of Purchased Assets (as such classes are defined
for the
purposes of Section 1060 of the Code), which shall be subject to
Seller's
approval which shall not be unreasonably withheld. All allocations
made pursuant
to this Section 2.3 shall be made in accordance with the
requirements of Section
1060 of the Code. None of the parties shall take a position on any
Tax Return
(including IRS Form 8594), before any Tax Authority or in any
judicial
Proceeding that is in any manner inconsistent with such allocation
by Purchaser
without the written consent of the other parties to this Agreement
or unless
specifically required pursuant to a determination by an applicable
Tax
Authority, in which case, notice shall be given to each party
hereto of such
determination and the applicable position taken therein. Seller
shall promptly
advise Purchaser of the existence of any tax audit, controversy or
litigation
related to any allocation hereunder.
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2.4
TRANSFER TAXES; PRORATIONS.
(a) Notwithstanding any Legal Requirements to the contrary, each
of
Seller and Purchaser shall be responsible for and shall pay
one-half of any
Transfer Taxes when due. Purchaser shall file all necessary tax
returns and
other documentation with respect to all such Transfer Taxes;
provided, however,
that, if required by any Legal Requirement, Seller will join in the
execution of
any such tax returns and other documentation. Each of Seller and
Purchaser shall
provide copies of any filings with respect to Transfer Taxes to the
other.
(b) Seller shall be responsible for and shall pay any Taxes
arising
or resulting from or in connection with the conduct of the Business
or the
ownership of the Purchased Assets attributable to the Pre-Closing
Period.
Purchaser shall be responsible for and shall pay any Taxes arising
or resulting
from or in connection with the conduct of the Business or the
ownership of the
Purchased Assets attributable to the Post-Closing Period.
(c) All real property, personal property, ad valorem or other
similar Taxes (not including income Taxes) levied with respect to
the Purchased
Assets or the Business for a taxable period which includes (but
does not end on)
the Closing Date shall be apportioned between Purchaser and Seller
based on the
number of days included in such period through the Closing Date and
the number
of days included in such period from and after the Closing Date,
and the
Purchase Price shall be adjusted to reflect such apportionment.
(d) On or before the Closing Date, Seller shall furnish to
Purchaser
Tax clearance certificates, under California Revenue and Taxation
Code Section
6812 and California Unemployment Insurance Code Section 1732 or
otherwise as
applicable, releasing Purchaser from liability with respect to any
sales or use
Tax or employment Tax liability of Seller.
ARTICLE 3. CLOSING AND CLOSING DELIVERIES
3.1
CLOSING; TIME AND PLACE. The closing of the purchase and sale
provided
for in this Agreement (the "Closing") shall occur at the offices of
Morrison &
Foerster LLP, 19900 MacArthur Blvd., Irvine, CA 92612, at 10:00
A.M. on the
second (2nd) Business Day following the satisfaction or waiver of
each of the
conditions set forth in Article 9 or at such other date, time or
place as the
parties may agree upon in writing (the "Closing Date").
3.2
DELIVERIES BY SELLER. At the Closing, Seller shall (i) take all
steps
necessary to place Purchaser in actual possession and operating
control of the
Business and the Purchased Assets and (ii) deliver the following
items, duly
executed by Seller as applicable, all of which shall be in a form
and substance
reasonably acceptable to Purchaser and Purchaser's counsel:
(a) General Assignment and Bill of Sale. General Assignment and
Bill
of Sale covering all of the applicable Purchased Assets,
substantially in the
form attached hereto as Exhibit 3.2(a) (the "General Assignment and
Bill of
Sale");
(b) Assignment and Assumption Agreement. Assignment and
Assumption
Agreement, covering all of the Assumed Liabilities, substantially
in the form
attached hereto as Exhibit 3.2(b) (the "Assignment and
Assumption");
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(c) Intellectual Property Assignment. Any and all documents
necessary to properly record the assignment to Purchaser of all of
Seller's
right, title and interest in and to the Seller Intellectual
Property, including
trademarks, patents and copyrights, in a form mutually satisfactory
to Seller
and Purchaser;
(d) Other Conveyance Instruments. Such other specific instruments
of
sale, transfer, conveyance and assignment as Purchaser may
request;
(e) Lock-Up Agreements. Seller, Pencom Systems, Incorporated,
and
each of their shareholders or members shall have executed and
delivered a
Lock-Up Agreement substantially in the form attached hereto as
Exhibit 3.2(e)
("Lock-Up Agreement");
(f) Employment Agreements. Employment Agreements, substantially
in
the form attached hereto as Exhibit 3.2(f) ("Employment
Agreements") shall be
executed and delivered by each of Edward Ateyeh, Jr. and William
Kerley;
(g) Assignments of Leases. Assignments of all Real Property
Leases
and Personal Property Leases;
(h) Owned and Leased Vehicles. Vehicle titles and assignments
sufficient to transfer title to the Owned and Leased Vehicles;
(i) Certificate of Organization. Form of Certificate of Amendment
to
Seller's Charter documents, sufficient to change Seller's legal
name to one
dissimilar to Collective Technologies consistent with Section
7.3;
(j) Seller Contracts. Originals of all Seller Contracts;
(k) Payoff and Release Letters. Payoff and release letters
agreeing
to release liens against the Business or any of the Purchased
Assets in form and
substance reasonably satisfactory to Purchaser;
(l) Books and Records. The Books and Records;
(m) Certificate of Representations and Warranties and Member
Approval. A certificate executed on behalf of Seller by its
President,
certifying the matters in Section 9.1(a); and
(n) Certificate of Good Standing. A certificate from the
Secretary
of State of Delaware, as of a date no earlier than three (3)
Business Days prior
to the Closing Date, as to Seller's good standing and payment of
all applicable
taxes.
3.3
DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver
the
following items, duly executed by Purchaser as applicable, all of
which shall be
in a form and substance reasonably acceptable to Seller and
Seller's counsel:
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(a) Wire Transfer. A wire transfer to Silicon Valley Bank for
credit
to Seller's account (which account shall be specified in writing by
Seller at
least two (2) Business Days prior to the Closing), in the Cash
Amount; and
(b) Shares. Certificate(s) representing the Shares, in the name
of
Seller delivered to Seller;
(c) Note. The Note executed by Purchaser;
(d) Warrant. The Warrant executed by Purchaser;
(e) Certificate of Representations and Warranties. A
certificate
executed on behalf of Purchaser by its Chief Executive Officer,
certifying the
matters in Section 9.2(a); and
(f) Employment Agreements. The Employment Agreements executed
by
Purchaser.
3.4
DELIVERY BY PURCHASER AND SELLER. At the Closing, Purchaser and
Seller
shall deliver the following items, duly executed by the appropriate
parties, all
of which shall be in a form and substance reasonably acceptable to
the
non-delivering party and its counsel:
(a) Acknowledgements of License. The Acknowledgements of
License;
(b) Registration Rights Agreement. A Registration Rights
Agreement,
substantially in the form of Exhibit 3.4 (the "Registration Rights
Agreement").
(c) Assignment and Assumption Agreement. The Assignment and
Assumption Agreement; and
(d) Other Documentation. Such other certificates, instruments
or
documents required pursuant to the provisions of this Agreement or
otherwise
necessary or appropriate to transfer the Purchased Assets and
Assumed
Liabilities in accordance with the terms hereof and consummate the
Transaction,
and to vest in Purchaser and its successors and assigns full,
complete,
absolute, legal and equitable title to the Purchased Assets, free
and clear of
all Encumbrances other than Permitted Encumbrances, including such
certificates,
instruments and documents to be executed or delivered by Seller
pursuant to this
Article 3.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as
specifically set forth on Schedule 4 (the "Seller Disclosure
Schedule") attached to this Agreement (the parts of which are
numbered to
correspond to the individual Section numbers of this Article 4),
Seller hereby
represents and warrants to Purchaser as follows:
4.1
ORGANIZATION, GOOD STANDING, QUALIFICATION. The Seller
Disclosure
Schedule sets forth Seller's jurisdiction of organization and each
state or
other jurisdiction in which Seller is qualified to do business.
Seller (a) is a
limited liability company duly organized, validly existing and in
good standing
under the laws of its jurisdiction of organization; (b) is duly
qualified to
conduct business and is in good standing under the laws of each
jurisdiction in
which
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the failure to be so qualified would have a Material Adverse Effect
on Seller;
and (c) has full corporate power and authority required to own,
lease and
operate its assets and to carry on its business (including the
Business) as now
being conducted.
4.2
CHARTER DOCUMENTS; BOOKS AND RECORDS.
(a) Seller has delivered to Purchaser accurate, correct and
complete
copies of (i) the charter and organizational documents of Seller,
including all
amendments thereto, as presently in effect; and all books of
account and other
financial records of Seller.
(b) The books of account and other financial records of Seller
are
accurate and complete and have been maintained in accordance with
sound business
practices.
(c) Seller is not in violation of any of the provisions of its
charter documents, and to the Knowledge of Seller, no condition or
circumstance
exists that likely would (with or without notice or lapse of time)
constitute or
result directly or indirectly in such a violation.
4.3
CAPITALIZATION. Seller has provided Purchaser with a true and
accurate
list of each holder of interests in Seller and Pencom Systems,
Incorporated and
their respective state of residence. No other interests are issued
or
outstanding.
4.4
AUTHORITY; BINDING NATURE OF AGREEMENTS. Seller has all
requisite
limited liability company power and authority to execute and
deliver this
Agreement and all other Transaction Agreements to which it is a
party and to
carry out the provisions of this Agreement and the other
Transaction Agreements.
The execution, delivery and performance by Seller of this Agreement
and the
other Transaction Agreements have been approved by all requisite
action on the
part of Seller. This Agreement has been duly and validly executed
and delivered
by Seller. Each of this Agreement and the other Transaction
Agreements
constitutes, or upon execution and delivery, will constitute, the
legal, valid
and binding obligation of Seller, enforceable against Seller in
accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization,
moratorium and other similar laws and equitable principles related
to or
limiting creditors' rights generally and by general principles of
equity.
4.5 NO
CONFLICTS; REQUIRED CONSENTS. The execution, delivery and
performance of this Agreement or any other Transaction Agreement by
Seller do
not and will not (with or without notice or lapse of time):
(a) conflict with, violate or result in any breach of (i) any of
the
provisions of Seller's charter and organization documents; (ii) any
of the terms
or requirements of any Governmental Approval held by Seller or any
of its
employees or that otherwise relates to the Business or any of the
Purchased
Assets or Assumed Liabilities; or (iii) any provision of any Seller
Contract;
(b) give any
Governmental Authority or other Person the right to (i)
validly challenge the Transaction; (ii) exercise any remedy or
obtain any relief
under any Legal Requirement or any Order to which Seller, or any of
the
Purchased Assets or Assumed Liabilities, is subject; (iii) declare
a default of,
exercise any remedy under, accelerate the
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<PAGE>
performance of, cancel, terminate, modify or receive any payment
under any
Seller Contract; or (iv) revoke, suspend or modify any Governmental
Approval;
(c) cause Seller to become subject to, or to become liable for
the
payment of, any Tax other than Taxes included in Excluded
Liabilities and
Transfer Taxes;
(d) result in the imposition or creation of any Encumbrance upon
or
with respect to any of the Purchased Assets; or
(e) require Seller to obtain any Consent or make or deliver any
filing or notice to a Governmental Authority.
4.6
SUBSIDIARIES. Seller does not own any shares of capital stock or
other
securities of, or control, directly or indirectly, any other
Entity.
4.7
FINANCIAL STATEMENTS.
(a) Seller has previously delivered to Purchaser the following
financial statements (collectively, the "Financial Statements"):
(i) the
unaudited balance sheets, and the related unaudited statements of
operations and
cash flows of the Business as of and for the fiscal years ended
December 31,
2003, 2004, and 2005, together with the notes thereto; and (ii) the
unaudited
balance sheets (the "Interim Balance Sheet"), and the related
unaudited
statements of operations and cash flows of Seller as of and for the
three (3)
months ended March 31, 2006 (the "Interim Balance Sheet Date").
(b) All of the Financial Statements (i) are consistent with the
Books and Records of Seller; (ii) present fairly and in all
material respects
the financial condition of Seller as of the respective dates
thereof and the
results of operations and cash flows of Seller for the periods
covered thereby;
and (iii) have been prepared in accordance with GAAP, applied on a
consistent
basis throughout the periods covered; provided, however, that the
Interim
Balance Sheet is subject to year-end adjustments consistent with
past practice
(which will not be material individually or in the aggregate) and
does not
contain all of the footnotes required by GAAP. All reserves
established by
Seller and set forth in the Interim Balance Sheet other than
reserves for
accounts receivable are adequate for the purposes for which they
were
established.
(c) The Seller Disclosure Schedule sets forth an accurate,
correct
and complete breakdown and aging of each of Seller's accounts
payable (including
to all of its suppliers) as of March 31, 2006;
4.8 ABSENCE OF
UNDISCLOSED LIABILITIES. Seller has no Liabilities other
than (a) those set forth in the Interim Balance Sheet; (b) those
incurred in the
ordinary course of business and not required to be set forth in the
Interim
Balance Sheet under GAAP; (c) those incurred in the ordinary course
of business
since the date of the Interim Balance Sheet; and (d) those incurred
in
connection with the execution of any of the Transaction
Agreements.
4.9
ABSENCE OF CHANGES. Since the Interim Balance Sheet Date, (a)
Seller
has conducted the Business in the ordinary course of business; (b)
no event or
circumstance has occurred that could reasonably have a Material
Adverse Effect
on Seller; and (c) Seller has not
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<PAGE>
taken any action, agreed to take any action, or omitted to take any
action that
would constitute a breach of Section 6.1 or 6.2 if such action or
omission were
taken between the date of this Agreement and the Closing Date.
4.10
TRANSACTIONS WITH AFFILIATES. Except as set forth in the
Financial
Statements, no Affiliate (a) is indebted to Seller, nor is Seller
indebted (or
committed to make loans or extend or guarantee credit) to any
Affiliate other
than with respect to any of Seller's obligations to pay accrued
salaries,
reimbursable expenses or other standard employee benefits; (b) has
any direct or
indirect interest in any asset (including the Purchased Assets),
property or
other right used in the conduct of or otherwise related to the
Business; (c) has
any claim or right against Seller, and no event has occurred, and
no condition
or circumstance exists, that might (with or without notice or lapse
of time)
directly or indirectly give rise to or serve as a basis for any
claim or right
in favor of any Affiliate against Seller; (d) is a party to any
Seller Contract
or has had any direct or indirect interest in, any Seller Contract,
transaction
or business dealing of any nature involving Seller; or (e) received
from or
furnished to Seller any goods or services (with or without
consideration) since
the Interim Balance Sheet Date.
4.11
ACCOUNT RECEIVABLES. Schedule 1.1(a) sets forth an accurate and
complete list of all Receivables existing as of March 31, 2006.
Each Receivable
is (a) a valid and legally binding obligation of the account debtor
enforceable
in accordance with its terms, free and clear of all Encumbrances
other than
Permitted Encumbrances, and not subject to setoffs, adverse
claims,
counterclaims, assessments, defaults, prepayments, defenses, and
conditions
precedent; (b) a true and correct statement of the account for
merchandise
actually sold and delivered to, or for services actually performed
for and
accepted by, such account debtor; and (c) fully collectible and
will be
collected within one hundred twenty (120) days after the Closing
Date, subject
to trade discounts provided in the ordinary course of business and
any allowance
for doubtful accounts contained in the Interim Balance Sheet.
4.12
INVENTORY. All of the items in Seller's Inventory are (a) valued
on
the Financial Statements at the lower of cost and market value, on
a first-in,
first-out basis in accordance with GAAP; (b) of good and
merchantable quality,
fit for the purpose for which they are intended, and saleable and
useable in the
ordinary course of business; (c) free of defects and damage; and
(d) in
quantities adequate and not excessive in relation to the
circumstances of
Seller's Business and in accordance with Seller's past inventory
stocking
practices. All of the items in Seller's Inventory meet Seller's
current
standards and specifications.
4.13
MATERIAL CONTRACTS.
(a) Schedule 1.1(k) sets forth an accurate, correct and
complete
list of all unperformed or continuing Seller Contracts to which any
of the
descriptions set forth below may apply (the "Material
Contracts"):
(i) Personal Property Leases, Contracts affecting any Seller
Intellectual Property or Seller's Information Systems or
Software,
Contracts
with Contractors, Seller Benefit Plans and Governmental
Approvals;
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(ii) Any Contract for capital expenditures or for the purchase
of goods
or services in excess of $20,000, except those fully performed
or
those
incurred in the ordinary course of business and to be performed
in
three (3)
months or less;
(iii) Any Contract obligating Seller to sell or deliver any
product or
service at a price which does not cover the cost (including
labor,
materials and production overhead) plus the customary profit
margin
associated
with such product or service;
(iv) Any Contract involving financing or borrowing of money,
or
evidencing indebtedness, any liability for borrowed money, any
obligation
for the deferred purchase price of property in excess of
$20,000
(excluding normal trade payables) or guaranteeing in any way
any
Contract
in connection with any Person;
(v) Any joint venture, partnership, cooperative arrangement or
any other
Contract involving a sharing of profits;
(vi) Any advertising Contract not terminable without payment
or penalty
on thirty (30) days (or less) notice;
(vii) Any Contract affecting any right, title or interest in
or to Real
Property;
(viii) Any Contract with any Governmental Authority;
(ix) Any Contract relating to any license or royalty
arrangement;
(x) The charter, bylaws and other organizational or
constitutive documents of Seller and any Contract among members of
Seller;
(xi) Any Contract for the purchase or sale of any assets other
than in
the ordinary course of business or for the option or
preferential
rights to
purchase or sell any assets;
(xii) Any Contract to indemnify any Person or to share in or
contribute
to the liability of any Person;
(xii) Any Contract containing covenants not to compete in any
line of
business or with any Person in any geographical area;
(xiv) Any Contract related to the acquisition of a business or
the equity
of any other Entity;
(xv) Any other Contract which (i) provides for payment or
performance by either party thereto having an aggregate value of
$50,000
or more;
(ii) is not terminable without payment or penalty on thirty
(30)
days (or
less) notice; or (iii) is between, inter alia, an Affiliate and
Seller;
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<PAGE>
(xvi) Any other Contract that involves future payments,
performance of services or delivery of goods or materials to or by
Seller
of an
aggregate amount or value in excess of $50,000, on an annual
basis,
or that
otherwise is material to the Business; and
(xvii) Any proposed arrangement of a type that, if entered
into,
would be a Contract described in any of (i) through (xvi)
above.
For the avoidance of doubt, Material Contracts shall not include
any Contracts
solely between or among Edward Ateyeh, Jr., Wade Saadi and Edgar
Saadi if Seller
is not a party to such Contracts or Seller could not be bound or
receive
benefits thereunder, and if the Purchased Assets or Assumed
Liabilities could
not be affected thereby, and shall not include the Agreement among
Shareholders
dated on or about the date hereof among Seller, Pencom Systems
Incorporated,
Edward Ateyeh, Jr., Wade Saadi and Edgar Saadi.
(b) Seller has delivered to Purchaser accurate, correct and
complete
copies of all Material Contracts (or written summaries of the
material terms
thereof, if not in writing), including all amendments,
supplements,
modifications and waivers thereof. All nonmaterial Contracts of
Seller do not,
in the aggregate, represent a material portion of the Liabilities
of Seller.
(c) Each Seller Contract is currently valid and in full force
and
effect, and is enforceable by Seller in accordance with its terms
except where
the failure to be valid and in full force and effect would not have
a Material
Adverse Effect.
(d) Seller is not in default, and no party has notified Seller
that
it is in default, under any Seller Contract, except for such
defaults that could
not, individually or in the aggregate, reasonably be expected to
have a Material
Adverse Effect on Seller. To the Knowledge of Seller, no event has
occurred, and
no circumstance or condition exists, that could reasonably (with or
without
notice or lapse of time) (a) result in a violation or breach of any
of the
provisions of any Seller Contract; (b) give any Person the right to
declare a
default or exercise any remedy under any Seller Contract; (c) give
any Person
the right to accelerate the maturity or performance of any Seller
Contract or to
cancel, terminate or modify any Seller Contract; or (d) otherwise
have a
Material Adverse Effect on Seller in connection with any Seller
Contract. Seller
has not waived any of its material rights under any Seller
Contract.
(e) To the Knowledge of Seller, each Person against which Seller
has
or may acquire any rights under any material Seller Contract is
solvent and able
to satisfy such Person's material obligations and liabilities to
Seller.
(f) The performance of the Seller Contracts will not result in
any
violation of or failure by Seller to comply with any Legal
Requirement except
where the violation or failure to comply with such Legal
Requirement would not
have a Material Adverse Effect.
(g) The Material Contracts constitute all of the Contracts
reasonably necessary to enable Seller to conduct the Business in
the manner in
which such Business is currently being conducted.
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4.14
TITLE; SUFFICIENCY; CONDITION OF ASSETS.
(a) Seller has good and marketable title to, is the exclusive
legal
and equitable owner of, and has the unrestricted power and right to
sell, assign
and deliver the Purchased Assets. The Purchased Assets are free and
clear of all
Encumbrances of any kind or nature, except restrictions imposed in
any
Governmental Approval and Permitted Encumbrances. Upon Closing,
Purchaser will
acquire exclusive, good and marketable title or license to or a
valid leasehold
interest in (as the case may be) the Purchased Assets.
(b) To Seller's Knowledge, the Purchased Assets include all the
assets reasonably necessary to permit Purchaser to conduct the
Business after
the Closing in a manner substantially equivalent to the manner as
it is being
conducted on the date of this Agreement in compliance with all
Legal
Requirements.
(c) The tangible Purchased Assets taken as a whole are (i) in
good
operating condition and repair, ordinary wear and tear excepted;
and (ii)
suitable and adequate for continued use in the manner in which they
are
presently being used.
(d) Seller does not own and has not owned any Real Property.
4.15 REAL
PROPERTY LEASES. Schedule 1.1(f) sets forth an accurate,
correct
and complete list of all Real Property Leases (including the street
address of
each Leased Real Property and the name of the lessor) and a list of
Contracts
affecting each Leased Real Property. Seller has been in lawful
possession of the
premises covered by each Real Property Lease since the commencement
of the
original term of such Lease. Seller has delivered to Purchaser
accurate, correct
and complete copies of each Real Property Lease. To Seller's
Knowledge (without
any duty to inquire of any third party), there are no Environmental
Reports for
the Real Property subject to the Real Property Leases. All Real
Property Leases
are in good standing and are valid and effective in accordance with
their
respective terms and there exists no default thereunder or
occurrence or
condition which could result in a default thereunder or termination
thereof.
4.16
INTELLECTUAL PROPERTY.
(a) Schedule 1.1(h) lists all Seller Intellectual Property
reasonably necessary to conduct the Business as currently
conducted, specifying
in each case whether such Seller Intellectual Property is owned or
controlled by
or for, licensed to, or otherwise held by or for the benefit of
Seller,
including all Registered Intellectual Property Rights owned by,
filed in the
name of or applied for by Seller and used in the Business (the
"Seller
Registered Intellectual Property Rights").
(b) Each item of Seller Intellectual Property is free and clear
of
any Encumbrances, except for Permitted Encumbrances and
non-exclusive licenses
granted to end-user customers in the ordinary course of
business.
(c) The Seller Intellectual Property constitutes all the
Intellectual Property Rights used in or reasonably necessary to the
conduct of
the Business as it is currently conducted.
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(d) Seller has the right to use each item of Seller
Intellectual
Property in the manner currently used by Seller in the conduct of
the Business,
and upon Closing, each item of the Seller Intellectual Property
will be owned by
Purchaser or will be immediately available for use by Purchaser on
terms and
conditions substantially identical to those under which Seller
presently uses
such Seller Intellectual Property, without any affirmative act by
Purchaser or
any other Person. Such ownership and right to use are (and upon
Closing, will
be) free and clear of any Encumbrances, except for Permitted
Encumbrances and
non-exclusive licenses granted to end-user customers in the
ordinary course of
business.
(e) Seller has not transferred ownership of, or granted any
exclusive license of or right to use, or authorized the retention
of any
exclusive rights to use or joint ownership of, any Intellectual
Property Rights
that is Seller Intellectual Property to any Person. Seller has no
Knowledge of
any facts, circumstances or information that reasonably would be
expected to
materially and adversely affect or impede the ability of Seller to
use any
Seller Intellectual Property in the conduct of the Business as it
is currently
conducted or, to the Knowledge of Seller, by Purchaser following
the Closing.
Seller has not misrepresented, or failed to disclose, and has no
Knowledge of
any misrepresentation or failure to disclose, any fact or
circumstances in any
application for any Seller Registered Intellectual Property Right
that would
constitute fraud or a misrepresentation with respect to such
application or that
would otherwise affect the validity or enforceability of any Seller
Registered
Intellectual Property Right.
(f) All necessary registration, maintenance and renewal fees in
connection with each item of Seller Registered Intellectual
Property Rights have
been paid and all necessary documents and certificates in
connection with such
Seller Registered Intellectual Property Rights have been filed with
the relevant
patent, copyright, trademark or other authorities in the United
States or
foreign jurisdictions, as the case may be, for the purposes of
maintaining such
Seller Registered Intellectual Property Rights. There are no
actions that must
be taken by Seller within one hundred twenty (120) days following
the Closing
Date, including the payment of any registration, maintenance or
renewal fees or
the filing of any responses to office actions, documents,
applications or
certificates for the purposes of obtaining, maintaining,
perfecting, preserving
or renewing any Registered Intellectual Property Rights. To the
maximum extent
provided for by, and in accordance with, applicable laws and
regulations, Seller
has recorded in a timely manner each such assignment of a
Registered
Intellectual Property Right assigned to Seller with the relevant
governmental
authority, including the United States Patent and Trademark Office
(the "PTO"),
the U.S. Copyright Office or their respective counterparts in any
relevant
foreign jurisdiction, as the case may be.
(g)
Seller has taken commercially reasonable and customary actions
to maintain and protect (i) Seller's Intellectual Property, and
(ii) the
secrecy, confidentiality, value and Seller's rights in the
Confidential
Information and Trade Secrets of Seller and those provided by any
Person to
Seller, including by having and enforcing a policy requiring all
current and
former employees, consultants and contractors of Seller to execute
appropriate
confidentiality and intellectual property assignment agreements.
Seller has no
Knowledge of any violation or unauthorized disclosure of any Trade
Secret or
Confidential Information related to the Business, the Purchased
Assets or the
Assumed Liabilities, or obligations of confidentiality with respect
to such.
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(h) To the Knowledge of Seller, the Business as it is currently
conducted does not and will not, and will not when operated by
Purchaser
substantially in the same manner following the Closing: (i)
infringe or
misappropriate any Intellectual Property Rights of any Person; (ii)
violate any
right of any Person (including, without limitation, any right to
privacy or
publicity), (iii) defame any Person; or (iv) constitute unfair
competition or
trade practices under the laws of any jurisdiction. The Seller has
not received
any written notice or claim from any Person: (A) asserting any
ownership
interest in any Seller Intellectual Property; (B) of any actual,
alleged,
possible or potential infringement, misappropriation or
unauthorized use or
disclosure by the Seller of any Intellectual Property Right,
defamation of any
Person, violation of any right of any Person (including, without
limitation, any
right to privacy or publicity), or violation of any unfair
competition or trade
practice law by the Seller or any aspect of the Business as
currently conducted;
or (C) suggesting or inviting the Seller to take a license or
otherwise obtain
the right to use any Intellectual Property Right in connection with
the Business
as currently conducted. To the Knowledge of the Seller, and no
Person is
violating, infringing or misappropriating any Seller Intellectual
Property
Right.
(i) There are no Proceedings before any Governmental Authority
(including before the PTO) anywhere in the world related to any of
the Seller
Intellectual Property, including any Seller Registered Intellectual
Property
Rights.
(j) No Seller Intellectual Property or Seller Product is subject
to
any Proceeding or any outstanding decree, Order, judgment, office
action or
settlement agreement or stipulation that restricts in any manner
the use,
transfer or licensing thereof by Seller or that may affect the
validity, use or
enforceability of such Seller Intellectual Property.
(k)
Schedule 1.1(k) lists all Seller Contracts affecting any
Intellectual Property Rights. Seller is not in material breach of,
nor has
Seller failed to perform in any material respect under, any such
Seller
Contracts and, to Seller's Knowledge, no other party to any such
Seller
Contracts, is in material breach thereof or has failed to perform
in any
material respect thereunder.
(l) To the Knowledge of Seller, there is no Seller Contract
affecting any Seller Intellectual Property under which there is any
material
dispute regarding the scope of such Seller Contract, or performance
under such
Seller Contract, including with respect to any payments to be made
or received
by Seller thereunder.
4.17
CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.
(a) Customers. All Seller Contracts with customers were entered
into
by or on behalf of Seller and were entered into in the ordinary
course of
business for usual quantities and at normal prices. The Seller
Disclosure
Schedule sets forth an accurate, correct and complete:
(i) list of the 25 largest customers of the Business,
determined on the basis of sales revenues, for each of the fiscal
years ended
December 31, 2003, 2004 and 2005, and the three (3) month period
ended March 31,
2006;
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(ii) breakdown of the revenues received from each customer
that accounted for more than $10,000 of the gross revenues of
Seller, on an
annualized basis, for each of the fiscal years ended December 31,
2003, 2004 and
2005, and the three (3) month period ended March 31, 2006; and
(iii) breakdown of all customer deposits of greater than
$10,000 held by Seller as of the date of this Agreement.
(b) Suppliers. All Seller Contracts with suppliers were entered
into
by or on behalf of Seller and were entered into in the ordinary
course of
business for usual quantities and at normal prices. The Seller
Disclosure
Schedule sets forth an accurate, correct and complete:
(i) list of the 25 largest suppliers of the Business,
determined on the basis of costs of items purchased for each of the
fiscal years
ended December 31, 2003, 2004 and 2005 and the three (3) month
period ended
March 31, 2006;
(ii) breakdown of the amounts paid to each supplier that
received more than $10,000 from Seller (on an annualized basis) for
each of the
fiscal years ended December 31, 2005, 2004, and 2005 and the three
(3) month
period ended March 31, 2006; and
(iii) list of all sole source suppliers of Seller.
(c) Seller has not entered into any Contract under which Seller
is
restricted from selling, licensing or otherwise distributing any
Seller products
or services to any class of customers, in any geographic area,
during any period
of time or in any segment of the market.
(d) Seller has not received any notice or other communication,
has
not received any other information indicating, and otherwise has no
Knowledge,
that any current customer or supplier identified in the Seller
Disclosure
Schedule may cease dealing with Seller, may otherwise materially
reduce the
volume of business transacted by such Person with Seller or
otherwise is
materially dissatisfied with the service Seller provides such
Person. Seller has
no reason to believe that any such Person will cease to do business
with
Purchaser after, or as a result of, consummation of the
Transaction, or that
such Person is threatened with bankruptcy or insolvency. Seller has
no Knowledge
of any fact, condition or event which could reasonably, by itself
or in the
aggregate, adversely affect its relationship with any such Person.
Since March
31, 2006, there has been no cancellation of backlogged orders in
excess of the
average rate of cancellation prior to such date.
(e) Neither Seller nor any of its officers or employees has
directly
or indirectly given or agreed to give any rebate, gift or similar
benefit to any
customer, supplier, distributor, broker, governmental employee or
other Person,
who was, is or may be in a position to help or hinder the Business
(or assist in
connection with any actual or proposed transaction) which could
subject Seller
(or Purchaser after consummation of the Transaction) to any damage
or penalty in
any civil, criminal or governmental litigation or Proceeding or
which would have
a Material Adverse Effect on Seller (or Purchaser after
consummation of the
Transaction).
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4.18 SELLER
PRODUCTS, SERVICES AND WARRANTY. All services rendered by
Seller have been in material conformity with all applicable
contractual
commitments and all expressed or implied warranties.
4.19
EMPLOYEES AND CONSULTANTS.
(a) Employees and Contracts. No employee of Seller has been
granted
the right to continued employment by Seller except as set forth in
the standard
offer letter provided to Purchaser or to any material compensation
following
termination of employment with Seller in excess of two (2) weeks'
notice. Seller
has no Knowledge that any officer, director, employee or consultant
of Seller
(collectively, the "Contractors") intends to terminate his or her
employment or
other engagement with Seller, nor does Seller have a present
intention to
terminate the employment or engagement of any Contractor.
(b) Compensation. The Seller Disclosure Schedule sets forth an
accurate, correct and complete list of all (i) employees of Seller,
including
each employee's name, title or position, present annual
compensation (including
bonuses, commissions and deferred compensation), accrued and unused
paid
vacation and other paid leave, years of service, interests in any
incentive
compensation plan, and estimated entitlements to receive
supplementary
retirement benefits or allowances (whether pursuant to a
contractual obligation
or otherwise) and (ii) individuals who are currently performing
services for
Seller related to the Business who are classified as "consultants"
or
"independent contractors." The Seller Disclosure Schedule sets
forth all (i)
bonuses, severance payments, termination pay and other special
compensation of
any kind paid to, accrued with respect to, or that would be payable
to (as a
result of the Transaction), any present or former Contractor since
the Interim
Balance Sheet Date; (ii) increases in any employee's wage or salary
since the
Interim Balance Sheet Date; or (iii) increases or changes in any
other benefits
or insurance provided to any employees since the Interim Balance
Sheet Date. No
employee of Seller is eligible for payments that would constitute
"parachute
payments" under Section 280G of the Code.
(c) Disputes. There are no claims, disputes or controversies
pending
or, to the Knowledge of Seller, threatened involving any employee
or group of
employees. Seller has not suffered or sustained any work stoppage
and no such
work stoppage is threatened.
(d) Compliance with Legal Requirements. Seller has complied in
all
material respects with all Legal Requirements related to the
employment of its
employees, including provisions related to wages, hours, leaves of
absence,
equal opportunity, occupational health and safety, workers'
compensation,
severance, employee handbooks or manuals, collective bargaining and
the payment
of social security and other Taxes.
(e) WARN Act. Seller is in full compliance with the Worker
Readjustment and Notification Act (the "WARN Act") (29 USC Section
2101),
including all obligations to promptly and correctly furnish all
notices required
to be given thereunder in connection with any "plant closing" or
"mass layoff"
to "affected employees", "representatives" and any state dislocated
worker unit
and local government officials. No reduction in the notification
period under
the WARN Act is being relied upon by Seller. The Seller Disclosure
Schedule sets
forth an accurate, correct and complete list of all employees
terminated (except
with cause, by voluntarily
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departure or by normal retirement), laid off or subjected to a
reduction of more
than 50% in hours or work during the two full calendar months and
the partial
month preceding the date hereof.
(f) Unions. Seller has no collective bargaining agreements with
any
of its employees. There is no labor union organizing or election
activity
pending or, to the Knowledge of Seller, threatened with respect to
Seller.
4.20
SELLER BENEFIT PLANS.
(a) The Seller Disclosure Schedule sets forth an accurate,
correct
and complete list of each Seller Benefit Plan. To the Knowledge of
Seller, each
Seller Benefit Plan has been maintained in compliance in all
material respects
with its terms and with the requirements under applicable law,
including but not
limited to ERISA and the Code.
(b) None of the Seller Benefit Plans is a (i) a Multiemployer
Plan,
(ii) a Defined Benefit Plan, or (iii) a plan that is subject to
Section 412 of
the Code; and neither Seller nor any ERISA Affiliate has at any
time within the
past six (6) years contributed to, maintained, or incurred any
liability with
respect to any such plan.
(c) Each Seller Benefit Plan which is intended to be qualified
under
Section 401(a) of the Code (and any related trust intended to be
exempt from tax
under Section 501(a) of the Code) is the subject of a favorable
IRS
determination, notification, or opinion letter issued after January
1, 1997 and
has been administered in substantial compliance with the Economic
Growth and Tax
Relief Reconciliation Act of 2001 and subsequent legislation
enacted through the
date hereof, and Section 501 of the Code. To the Knowledge of the
Company,
nothing has occurred since the issuance of the IRS's most recent
favorable
determination letter (or opinion or notification letter, if
applicable) that
could adversely affect the qualification of such Seller Benefit
Plan or the tax
exempt status of its related trust.
(d) No Seller Benefit Plan provides benefits, including death
or
medical benefits (whether or not insured), with respect to
employees or former
employees of Seller and its ERISA Affiliates beyond retirement or
other
termination of service, other than coverage required by Section
4980B of the
Code and Sections 601 through 608 of ERISA (and, if applicable,
comparable state
law).
(e) Nothing contained in any of the Seller Benefit Plans will
obligate Purchaser to provide any benefits to employees, former
employees or
beneficiaries of employees or former employees, or to make any
contributions to
any plans from and after the Closing.
4.21
COMPLIANCE WITH LAWS. Seller is, and at all times since January
1,
2004 has been, in compliance in all respects with each Legal
Requirement that is
applicable to Seller or any of Seller's properties, assets
(including the
Purchased Assets), operations or businesses (including the
Business), and no
event has occurred, and no condition or circumstance exists, that
could
reasonably (with or without notice or lapse of time) constitute, or
result
directly or indirectly in, a default under, a breach or violation
of, or a
failure comply with, any such Legal Requirement in any respect, in
each case
except for defaults under, breaches or violations of, or failures
to comply
with, any such Legal Requirements that could not, individually or
in the
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aggregate, reasonably be expected to have a Material Adverse Effect
on Seller.
Seller has not received any notice from any third party regarding
any actual,
alleged or potential violation of any Legal Requirement.
4.22
GOVERNMENTAL APPROVALS.
(a) Seller has all Governmental Approvals that are reasonably
necessary in connection with Seller's ownership and use of its
properties or
assets (including the Purchased Assets) or Seller's operation of
its businesses
(including the Business). Schedule 1.1(l) contains an accurate,
correct and
complete list and summary description of each such Governmental
Approval. Each
such Governmental Approval, filing and notification is valid and in
full force
and effect, and there is not pending or, to the Knowledge of
Seller, threatened
any Proceeding which could result in the suspension, termination,
revocation,
cancellation, limitation or impairment of any such Governmental
Approval. No
violations have been recorded in respect of a
