STOCK PURCHASE AGREEMENT

Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

among

 

MERIX CORPORATION,

 

DATA CIRCUIT SYSTEMS, INC.,

 

DATA CIRCUIT HOLDINGS, INC.,

 

and

 

STOCKHOLDERS of DATA CIRCUIT HOLDINGS, INC.

 

Dated as of December 9, 2004

CONTENTS

 

 

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STOCK PURCHASE AGREEMENT

 

This Stock Purchase Agreement (this “ Agreement ”) is made and entered into as of December 9, 2004, by and among Merix Corporation, an Oregon corporation (“ Buyer ”), Data Circuit Systems, Inc., a California corporation (the “ Company ”), Data Circuit Holdings, Inc., a Delaware corporation (“ Parent ”), and the Stockholders of Parent identified on the Signature Page to this Agreement (the “ Stockholders ”).

 

RECITALS

 

A. Parent owns all of the outstanding shares of the Company. The Stockholders own all of the outstanding shares of Parent (the “ Shares ”) and desire and intend to sell the Shares to Buyer for the consideration and on the terms and subject to the conditions set forth below.

 

B. Buyer desires and intends to purchase the Shares from the Stockholders for the consideration and on the terms and subject to the conditions set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I - PURCHASE AND SALE OF SHARES

 

1.1 Purchase and Sale of Shares

 

On the terms and subject to the conditions of this Agreement, Buyer agrees to purchase the Shares from the Stockholders, and the Stockholders agree to sell the Shares to Buyer free and clear of any lien, mortgage, deed of trust, pledge, security interest or other encumbrance (“ Lien ”).

 

1.2 Consideration for Shares; Payments

 

1.2.1 Purchase Price

 

(a) The aggregate purchase price for the Shares is $43,000,000.00 (the “ Purchase Price ”) plus the aggregate amount of Cash and Cash Equivalents of Parent and/or the Company at the Closing Date. The Purchase Price is subject to adjustment as provided in Section 1.2.2 . For purposes of this Section 1.2.1 , “ Cash and Cash Equivalents ” means cash in the Company’s or Parents bank accounts as of the close of business on the Closing Date less (i) amounts for which checks have been written, which checks have not cleared the bank account as of Closing and (ii) checks deposited in the bank accounts for which insufficient funds are available to cover the amount of such checks; provided that if such funds are later collected by Buyer within 30 days of the Closing Date, Buyer shall reimburse the amount of such collected funds to Stockholders’ Agent.

 

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(b) The Purchase Price shall be paid at the Closing by Buyer as follows:

 

(i) To the Escrow Agent, Buyer shall deliver (x) a sum equal to Four Million Two Hundred and Twenty-Five Thousand Dollars ($4,225,000.00) (the “ Indemnification Escrow Amount” ) to be held by the Escrow Agent for distribution in accordance with the terms of Article X and the Indemnification Escrow Agreement referred to in section 1.3(a) and (y) a sum equal to One Hundred and Fifty Thousand Dollars ($150,000.00) (the “ Working Capital Escrow Amount” ) to be held by the Escrow Agent for distribution in accordance with the provisions of Section 1.2.2, below, and the terms of the Working Capital Escrow Agreement referred to in Section 1.3(b), each Stockholder to receive the percentage of such distributions set forth opposite such Stockholder’s name on Schedule 1.2.1(b).

 

(ii) To the Stockholders’ Agent, on behalf of the Series A Preferred Stockholders (as defined in Section 1.2.1(c) below) for distribution to the Series A Preferred Stockholders in accordance with Schedule 1.2.2(a)(ii), the Buyer shall deliver an amount equal to $5,645,609.10.

 

(iii) To the Stockholders’ Agent, on behalf of the Common Stockholders (as defined in Section 1.2.1(c) below) for distribution to the Common Stockholders in accordance with Schedule 1.2.2(a)(iii), the Buyer shall deliver an amount equal to $18,938,603.72.

 

(iv) To the Stockholders’ Agent, on behalf of each Warrant Holder (as defined in Section 1.2.1(c) below) that has delivered a Warrant Cancellation Agreement (as defined in Section 1.2.1(c) below) or, with respect to the Management Stockholders that are Warrant Holders, a termination agreement with respect to the Restricted Stock Purchase Agreement by and between such Management Stockholder and Parent, for distribution to such Warrant Holders in accordance with the provisions of Schedule 1.2.2(iv), the Buyer shall deliver an amount equal to $612,345.02.

 

(v) To McDonald Investments Inc., an amount equal to $566,445 (the “ McDonald Investments Amount ”).

 

(vi) To Banc of America Commercial Finance Corporation (“ BACF ”) the BACF Amount.

 

(vii) To the Stockholders’ Agent, a Promissory Note in the original principal amount of Two Million Dollars ($2,000,000) in the form attached hereto as Exhibit 1.2.1 (the “ Promissory Note ”).

 

(viii) To the Stockholders’ Agent, a sum equal to Three Hundred and Fifty Thousand Dollars ($350,000.00) to be used by the Stockholders’ Agent to satisfy the obligations of the Stockholders under Section 5.2, it being understood and agreed that

 

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following satisfaction in full of such obligations, the portion of such sum then remaining, if any, shall be distributed by the Stockholders’ Agent to the Stockholders (including the Stockholders’ Agent), the amount of such sum then remaining, if any, to be distributed to each Stockholder being the percentage of such sum then remaining, if any, set forth opposite such Stockholder’s name on Schedule 1.2.1(ix) attached hereto.

 

(ix) To Finn Dixon & Herling LLP, an amount equal to $130,000.00.

 

(x) To Citicorp Vendor Finance, Inc., an amount equal to $273,715.00.

 

(c) The aggregate amount of Cash and Cash Equivalents shall be paid by Buyer five business days after the Closing Date.

 

(d) Definitions

 

(i) “ Series A Preferred Stockholders ” means the holders of shares of Redeemable Preferred Stock of the Company, par value $0.001 per share.

 

(ii) “ Common Stockholders ” means the holders of shares of (i) Class A Non-Voting Convertible Common Stock of the Company, par value $0.001 per share or (ii) Class B Voting common stock of the Company, par value $0.001 per share.

 

(iii) “ Warrant Holder ” means each of Banc of America Management Corporation, Shufro Family Holdings, LLC (“ Shufro ”) and Kenneth R. Macartney (“ Macartney ”) and each Management Stockholder.

 

(iv) “ Warrant Cancellation Agreement ” means an agreement executed by a Warrant Holder substantially in the form of Exhibit 1.2.1(d)(iv) hereto.

 

(v) “ BACF Amount ” means $10,108,282.16 being the amount necessary to settle the Company’s obligations as of the Closing Date under its Credit Agreement, dated as June 26, 2000, as amended, as set forth in that letter, dated as December 7, 2004 from Banc of America Commercial Finance Corporation (the “ Payout Letter ”).

 

1.2.2 Closing Adjustment to Purchase Price

 

(a) “ Working Capital ” shall mean the difference between (i) the sum of Parent’s consolidated accounts receivable (less reserve for bad debt), inventory (less reserve for excess and obsolete inventory) and prepaid expenses and (ii) the sum of Parent’s consolidated ordinary accounts payable and accrued liabilities (less any accrued liabilities for federal, state and local income taxes payable in respect of Pre-Closing Tax Periods, dividends payable, interest payable and liabilities in respect of transactions between Parent or the Company and any of the Stockholders that are not Management Stockholders), as of any date, determined in conformity with United States generally accepted accounting principals (“ GAAP ”) and in a manner consistent with that used to prepare the sample Working Capital calculation attached hereto as Exhibit 1.2.2(a) (“ Sample Working Capital ”) and the Financial Statements (including, without limitation, with respect to reserve methods and methods of estimation). There shall be excluded from any calculation of Working Capital any bonuses payable or paid in respect of the year ended September 30, 2004.

 

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(b) As soon as practicable, but in any event, no later than sixty (60) days after the Closing Date, the Company shall prepare and deliver to Stockholders’ Agent (as defined in Section 9.11 ) a calculation (the “ Preliminary Closing Working Capital Statement ”) of Working Capital as of 11:59 P.M. on the Closing Date, determined in accordance with GAAP and in a manner consistent with that used to prepare the Sample Working Capital and the Financial Statements (including, without limitation, with respect to reserve methods and methods of estimation) (the “ Closing Working Capital ”). For avoidance of doubt, it is understood that the consolidated accounts payable and accrued liabilities used in the determination of the Closing Working Capital shall include amounts for which checks in payment have been written, but which checks have not cleared the bank account as of the Closing, unless sufficient cash has been left in such bank account as of the Closing to cover outstanding checks, in which case such amounts will not be included in the determination of the Closing Working Capital.

 

(c) If Stockholders’ Agent agrees with the Closing Working Capital as set forth in the Preliminary Closing Working Capital Statement, the Closing Working Capital shall be deemed to be the Final Working Capital as defined below.

 

(d) If Stockholders’ Agent disputes the Closing Working Capital as set forth in the Preliminary Closing Working Capital Statement, Stockholders’ Agent may, within twenty (20) days after receipt of the Preliminary Closing Working Capital Statement from the Company provide Buyer with a written statement (the “ Adjustment Statement ”) setting out in reasonable detail all of its proposed adjustments to the Closing Working Capital and its proposed adjustments to the Purchase Price.

 

(e) If Buyer agrees with the Adjustment Statement, the Working Capital set forth in the Adjustment Statement shall be deemed to be the Final Working Capital.

 

(f) If Buyer disputes the Adjustment Statement, Buyer shall have twenty (20) days after delivery of the Adjustment Statement to object in writing to Stockholders’ Agent to such proposed adjustments (the proposed adjustment or adjustments to which Buyer objects being referred to herein as the “ Contested Adjustments ” and Buyer’s notice being referred to herein as the “ Contested Adjustment Notice ”) setting out in detail Buyer’s objections to such proposed adjustments and the alternative adjustments, if any, proposed by Buyer.

 

(g) Buyer and Stockholders’ Agent shall use reasonable efforts to resolve the dispute regarding the Contested Adjustments and if they come to an agreement, the agreed upon Working Capital shall be deemed to be the Final Working Capital, but if a final resolution is not agreed upon within ten (10) days after Buyer delivers the Contested Adjustment Notice, Buyer and Stockholders’ Agent shall promptly engage an independent accountant mutually agreeable to Buyer and the Stockholders’ Agent (the “ Independent Expert ”) to resolve any remaining dispute involving the Contested Adjustments. In making its determination, the Independent Expert shall consider only the items or amounts in dispute

 

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(and, to the extent required, any other items or amounts necessary to derive the disputed items or amounts). The costs and expenses of such Independent Expert shall be borne by the party whose initial position is furthest from the determination of the Independent Expert.

 

(h) The Independent Expert shall make a determination of the Working Capital as of 11:59 pm on the Closing Date (the “ Final Working Capital ”) and shall deliver such determination to Buyer and Stockholders’ Agent no later than thirty (30) days following appointment. The decision of the Independent Expert shall be final and binding upon the parties.

 

(i) If the Final Working Capital reflects Working Capital that is lower than $2,489,707.00, being the amount of Working Capital of Parent as at September 30, 2004 (a “ Buyer Adjustment ”), then Buyer shall be entitled to recover from Stockholders the amount of the difference in the Working Capital, plus interest thereon from the Closing Date to and including the date on which payment is made at a rate per annum equal to the Agreed Rate. If the Final Working Capital reflects Working Capital that exceeds $2,489,707.00 (a “ Stockholder Adjustment ”), then Stockholders shall be entitled to an increase in the Purchase Price in the amount of the difference in Working Capital, plus interest thereon from the Closing Date to and including the date on which payment is made at a rate per annum equal to the Agreed Rate. The amount of any Buyer Adjustment or Stockholder Adjustment, as the case may be, shall be paid to Buyer or Stockholders’ Agent, as appropriate, no later than ten (10) days after the date upon which the amount of the Final Working Capital is determined in accordance with this Section 1.2.2 .

 

(j) For purposes of this Section 1.2.2 , “ Agreed Rate ” means the prime rate published by Citibank N.A., New York, New York, as that rate may vary from time to time, or if the rate is no longer published, a comparable rate.

 

1.2.3 Payment of Lease

 

At Closing, Buyer will pay $126,285.00 to Citicorp Vendor Finance, Inc. in partial satisfaction of the Company’s and Parent’s obligations under that certain Master Lease Agreement dated December 26, 2001 between the Company and Citicorp Vendor Finance, Inc.

 

1.3 Escrows

 

(a) The Indemnification Escrow Amount shall be paid to Wells Fargo N.A. (the “ Escrow Agent ”) to be held in escrow in accordance with an escrow agreement in substantially the form attached hereto as Exhibit 1.3(a) (the “ Indemnification Escrow Agreement ”) to be entered into by Buyer, Stockholders’ Agent and the Escrow Agent at or prior to Closing, and shall be paid out as provided therein. The Indemnification Escrow Amount shall be held as security for the obligations described in Sections 5.2 and 8.2 hereof. Subject always to the terms and conditions of the Indemnification Escrow Agreement, (i) One Million Dollars ($1,000,000.00) of the Indemnification Escrow Amount shall be released to Stockholders’ Agent, if available, six months after the date of this Agreement; (ii) an

 

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additional One Million Dollars ($1,000,000.00) of the Indemnification Escrow Amount shall be released to Stockholders’ Agent, if available, 12 months after the date of this Agreement; and (iii) any remaining balance of the Indemnification Escrow Amount shall be released to Stockholders’ Agent 18 months after the date of this Agreement.

 

(b) The Working Capital Escrow Amount shall be paid to the Escrow Agent to be held in escrow in accordance with an escrow agreement in substantially the form attached hereto as Exhibit 1.3(b) (the “ Working Capital Escrow Agreement ”) to be entered into by Buyer, Stockholders’ Agent, and the Escrow Agent at or prior to Closing, and shall be paid out as provided therein. The Working Capital Escrow Amount shall be held as security for the obligations of Stockholders described in Section 1.2.2 hereof. Subject always to the terms and conditions of the Working Capital Escrow Agreement, any remaining portion of the Working Capital Escrow Amount shall be released to Stockholders’ Agent, if available, within three (3) business days after the date upon which the amount of the Final Working Capital is determined in accordance with Section 1.2.2 .

 

1.4 The Closing

 

The closing of the transactions contemplated herein (the “ Closing ”) shall take place on the date hereof at 10:00 a.m. local time (or at such other time as the parties may agree) at the offices of Perkins Coie LLP, 1120 NW Couch Street, 10 ^th Floor, Portland, Oregon (the “ Closing Date ”).

 

ARTICLE II - REPRESENTATIONS AND WARRANTIES OF

PARENT, THE COMPANY AND THE STOCKHOLDERS

 

Subject to the exceptions and limitations set forth in this Agreement and except as set forth in the correspondingly numbered section of the Disclosure Memorandum attached hereto as Exhibit 2 (it being understood and agreed that the listing or setting forth of an item in one section of the Disclosure Memorandum shall be deemed to be a listing or setting forth of such item in another section or sections of the Disclosure Memorandum if such information is reasonably apparent on its face to be applicable to such other section or sections)(the “ Disclosure Memorandum ”), and to induce Buyer to enter into and perform this Agreement, the Escrow Agreement and the other agreements and certificates that are required to be executed pursuant to this Agreement (collectively, the “ Operative Documents ”), the Company, Parent and Stockholders jointly and severally represent and warrant to Buyer as of the date of this Agreement as follows in this Article II.

 

2.1 Organization

 

Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each of Parent and the Company has all requisite corporate power and authority to own, operate and lease their respective properties and assets, to carry on their respective businesses as now conducted, to enter into and perform their respective obligations under this Agreement and the other

 

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Operative Documents to which either of them is a party, and to consummate the transactions contemplated hereby and thereby. Each of Parent and the Company is duly qualified and licensed as a foreign corporation to do business and is in good standing in each jurisdiction in which the character of the properties occupied, owned or held under lease by it or the nature of its respective business makes such qualification or licensing necessary. True, correct and complete copies of the Certificate of Incorporation of Parent, the Articles of Incorporation of the Company and the Bylaws of each of Parent and the Company (or similar organizational instruments), as amended, and all minutes of all meetings (or written consents in lieu of meetings) of the Board of Directors (and all committees thereof) of Parent and the Company, of shareholders of the Company and of stockholders of Parent have been delivered to Buyer.

 

2.2 Enforceability

 

All corporate action on the part of each of the Company and Parent and their respective officers, directors and shareholders/stockholders necessary for the authorization, execution, delivery and performance of this Agreement and the other Operative Documents to which either of them is a party and the performance of all of each of their respective obligations under this Agreement and the other Operative Documents to which either of them are a party has been taken. This Agreement has been, and each of the other Operative Documents to which the Company or Parent is a party has been duly executed and delivered by the Company or Parent, as the case may be, and this Agreement is, and each of the other Operative Documents to which either the Company or Parent is a party will be, (assuming due authorization, execution and delivery by Buyer) at the Closing, a legal, valid and binding obligation of the Company or Parent, as the case may be, enforceable against the Company and Parent in accordance with its terms, except as such enforceability may be limited or affected by (a) applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws from time to time in effect that affect creditors’ rights generally or (b) general principles of equity (whether considered in a court of law or equity).

 

2.3 Capitalization

 

(a) The authorized capital stock of the Company consists of 10,000 shares of Company common stock.

 

(b) As of the date of this Agreement, the issued and outstanding capital stock of the Company consists solely of 1,000 shares of Company common stock, all of which shares are owned of record and beneficially by Parent. Such outstanding shares are duly authorized and validly issued, fully paid and nonassessable, and not issued in violation of or subject to any preemptive rights and in compliance with federal and state securities laws. No person, corporation, partnership, limited liability company, joint venture, association, organization, other entity or governmental, administrative or regulatory authority (a “ Person ”), other than Parent, holds any interest in any of the outstanding shares of the Company’s capital stock.

 

(c) The authorized capital stock of Parent consists of 8,000,000 shares of Parent Common Stock and 96,500 shares of Parent preferred Stock.

 

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(d) As of the date of this Agreement, the issued and outstanding capital stock of Parent consists solely of 2,525,000 shares of Class A Non-Voting Convertible Common Stock, 950,000 shares of Class B Voting Common Stock and 40,000 shares of Series A Redeemable Preferred Stock, all of which are owned by the Persons identified on Schedule 2.3 in the amounts listed next to each such Person’s name. Such outstanding shares are duly authorized and validly issued, fully paid and nonassessable, and not issued in violation of or subject to any preemptive rights and in compliance with federal and state securities laws. No Person, other than the Stockholders, holds any interest in any of the outstanding shares of Parent’s capital stock.

 

(e) As of the date of this Agreement, there are no outstanding rights of first refusal or offer, preemptive rights, options, warrants, conversion rights or other agreements, either directly or indirectly, for the purchase or acquisition from Parent or any holder of any shares of Parent’s capital stock or any securities convertible into or exchangeable for shares of Parent’s capital stock.

 

(f) As of the date of this Agreement, there are no outstanding rights of first refusal or offer, preemptive rights, options, warrants, conversion rights or other agreements, either directly or indirectly, for the purchase or acquisition from the Company or Parent or any securities convertible into or exchangeable for shares of the Company’s capital stock.

 

(g) Neither the Company nor Parent is a party or subject to any agreement or understanding and there is no agreement or understanding between any Persons that affects or relates to the voting or giving of written consents with respect to any securities of the Company or Parent or the voting by any director of the Company or Parent.

 

2.4 Subsidiaries

 

The Company does not and, other than the Company, Parent does not, own, directly or indirectly, any capital stock or other equity securities of any corporation or have any other direct or indirect equity or ownership interest in any corporation, partnership, joint venture or similar business entity, nor is Parent or the Company subject to any obligation to provide funds to, or invest in any corporation, partnership, joint venture or similar business entity.

 

2.5 No Approvals or Notices Required; No Conflicts With Instruments

 

The execution, delivery and performance of this Agreement and the other Operative Documents by Parent and the Company (as defined in Section 9.9(b) )will not (a) constitute a violation (with or without the giving of notice or lapse of time, or both) of any provision of law, rule, regulation, order, writ, judgment, decree, injunction, determination or award (“ Law ”) applicable to Parent and the Company; (b) require any consent, approval or authorization of any Person; (c) conflict with or result in a breach of or constitute a default under any provision of the Company’s Articles of Incorporation or Bylaws or Parent’s Certificate of Incorporation or Bylaws; or (d) result in any breach of, or constitute a default (with or without the giving of notice or lapse of time, or both) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of

 

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any Lien on any of the assets or properties of the Company or Parent pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument relating to such assets or properties, to which either Parent or the Company is a party or by which any of such assets or properties is bound or affected.

 

2.6 Financial Information; Absence of Undisclosed Liabilities

 

(a) Seller has provided to Buyer true and complete copies of (i) consolidated audited balance sheets of Parent dated September 30, 2002, 2003, and 2004 and the related statements of operations, cash flows, redeemable preferred stock and stockholder deficit for the periods then ended, including the notes thereto (collectively, the “Annual Financial Statements” ); and (ii) an unaudited consolidated balance sheet of Parent as of October 31, 2004 (the “ Reference Balance Sheet ”) and unaudited consolidated statements of operations, cash flow, redeemable preferred stock and stockholder deficit for Parent for the one-month period ended October 31, 2004 (together with the Reference Balance Sheet, the “ Reference Financial Statements ” and, together with the Annual Financial Statements, the “ Financial Statements ”). The Financial Statements present fairly in all material respects, Parent’s consolidated financial condition and results of operations as of the dates thereof or for the periods covered thereby and the Financial Statements have been prepared in accordance with GAAP consistently applied throughout the periods covered thereby, except that the Reference Financial Statements do not contain the footnotes required by GAAP and are subject to year-end and other non-material adjustments. The Financial Statements are in accordance with the books and records of Parent and the Company and do not reflect any transactions that are not bona fide transactions. Neither the Company nor Parent is a guarantor of, or indemnitor, surety or other obligor with respect to any indebtedness of any other Person.

 

(b) All of the financial projections and forward-looking statements concerning the business of the Company and Parent that have been furnished to Buyer by the Company were based upon assumptions made in good faith and considered reasonable by the Company at the time such projections and forward-looking statements were delivered to Buyer in light of historical financial information concerning the business of the Company and Parent. Such assumptions assume that the Business will remain a stand-alone entity and do not take into account the effect of the transactions contemplated by this Agreement. The financial projections represent the Company’s good faith reasonable estimate of the results of operations and cash flows for the periods covered thereby and the financial position as of the dates set forth therein of the Company and Parent based upon the assumptions described above.

 

(c) Except as set forth in the Disclosure Memorandum, neither the Company nor Parent has any liabilities, obligations or commitments, whether accrued, absolute, contingent or otherwise, except liabilities, obligations or commitments: (i) provided for or disclosed in the Financial Statements; (ii) incurred in the ordinary course of business consistent with past practice and not required under GAAP to be reflected in the Financial Statements or the notes thereto (none of which arises out of any breach of contract, breach of warranty, tort or violation of law); and (iii) incurred in connection with this Agreement or any of the transaction contemplated hereby. There is no material loss contingency, as defined in Statement of Financial Accounting Standards No. 5 that is not otherwise provided for or described in (i) or (ii) above.

 

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2.7 Litigation

 

(a) No claim, action, proceeding or investigation is pending or, to Seller’s Knowledge, threatened against the Company, Parent or any of their officers, directors, employees, agents or stockholders in their capacity as such or any of the Company’s or Parent’s properties or business, before any federal, state or municipal court, or administrative, governmental or regulatory authority or body, and the Company is not subject to any order, writ, judgment, injunction, decree, stipulation, consent order, determination or award. As used in this Agreement, the term “ Seller’s Knowledge ” means the actual knowledge of the Management Stockholders after inquiry of Steve Wentz, John Perna, Bill Boyle, Eric Schmidt, Joe Balesteri and Ron Williams. As used in this Agreement, the term “ Management Stockholders ” means Steven Robinson, Edwin Barclay, Michael Kadlec and Lisa Lloyd.

 

(b) There are no claims, actions, suits, arbitrations, criminal or civil proceedings or investigations pending or involving or, to Seller’s Knowledge, threatened by or against Seller before any court or governmental or nongovernmental department, commission, board, bureau, agency or instrumentality, or any other Person that questions the validity of this Agreement or the other Operative Documents or any action taken or to be taken by Seller pursuant to this Agreement or the other Operative Documents or in connection with the transactions contemplated hereby or thereby, and to Seller’s Knowledge, there is no valid basis for any such claim, action, suit, arbitration, criminal or civil proceeding or investigation.

 

2.8 Compliance with Laws; Licenses and Permits

 

(a) Schedule 2.8 sets forth a list and description of governmental licenses, franchises, permits, approvals, authorizations, certificates, registrations, licenses, rights and code approvals (“ Permits ”) held by the Business (as defined in Section 9.9(b) ), complete and correct copies of which have been made available through Seller’s online data room or delivered by Seller to Buyer.

 

(b) The Business is not in violation of, nor has any notice been received that claims that the Business is in violation of, any Law applicable to it or by which any of its assets or properties are bound or affected. The Company and Parent have all Permits necessary to carry on their respective businesses. Other than Permits listed on Schedule 2.8 , there are no Permits, whether federal, state, local or foreign, that are necessary for the lawful operation of the business of the Company or Parent.

 

(c) (i) Each of the Company and Parent has fulfilled and performed its obligations under each of the Permits applicable to its business, and no event has occurred or condition or state of facts exists that constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such Permit or that allows or, after notice of lapse of time or both, would allow revocation or termination of any such Permit, or that could reasonably be

 

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expected to have a Material Adverse Effect; and (ii) no written or, to Seller’s knowledge, any other notice of cancellation or default or of any dispute concerning any of the Company’s or Parent’s Permits, or of any event, condition or state of facts described in the preceding clause, has been received and to Seller’s Knowledge, no such event, condition or state of facts exists. For purposes of this Agreement, the term “ Material Adverse Effect ” shall mean any change in, or effect on, Parent or the Company that is materially adverse to the results of operations, the financial condition, or the assets or business of Parent or the Company taken as a whole, provided that any adverse change, event, development, or effect resulting from the performance of this Agreement or the other Operative Documents shall not be deemed to constitute, and shall not be taken into account in determining whether there has been a Material Adverse Effect.

 

(d) Each of the Permits of the Business is in full force and effect and the consummation of the transactions contemplated by this Agreement will not cause the occurrence of any breach, default or forfeiture of rights thereunder.

 

2.9 Environmental Compliance

 

(a) The Business holds all Permits required under Environmental Laws (as defined below) for the current use, occupancy or operation of its assets and the conduct of its business as it is now being conducted and Seller has provided copies of all such Permits to Buyer or has made such Permits available to Buyer in Seller’s online data room.

 

(b) The Business is not in violation of any Environmental Laws or any such Permits.

 

(c) Seller has not received written, or to Seller’s Knowledge, any other notice from any governmental agency or authority alleging that the Business or any of its assets is not in compliance with Environmental Laws, and, to Seller’s Knowledge there are no circumstances that could reasonably be expected to prevent or interfere with material compliance by the Business with Environmental Laws in the future.

 

(d) There is no asserted (in writing, or to Seller’s Knowledge, otherwise) claim, action, cause of action or investigation by any Person alleging potential liability of the Business (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on, or resulting from the presence or release into the environment of any Hazardous Substance (as defined below) at the premises owned or leased by the Business, that is pending or to Seller’s Knowledge threatened against the Business, any of its assets or any of such premises.

 

(e) Schedule 2.9(e) sets forth a list of all substances, materials and products used, held for use, stored by or disposed of by the Business at any of its properties or facilities, the use, holding for use, storage or disposal of which requires the filing of reports or notifications or maintenance of records and data under applicable Environmental Laws.

 

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(f) The Business is not the subject of any litigation or proceedings in any forum, judicial or administrative, involving a demand for damages, injunctive relief, penalties, or other potential liability with respect to violations of any Environmental Law and, to Seller’s Knowledge, no such litigation or proceedings are threatened.

 

(g) The Business has timely filed all reports and notifications required to be filed with respect to all of its properties and facilities and has generated and maintained all required records and data under all applicable Environmental Laws.

 

(h) “ Environmental Laws ” means any statute, ordinance, regulation, rule, policy, interpretation, guideline or decree (including consent decrees, guidance documents and administrative orders) in effect as of the Closing, applicable to the Business, its business, or the real property from which it conducts its business, enacted or promulgated by any federal, state or municipal governmental entity or authority having jurisdiction over the Business for the activities it conducts that (i) regulates the exposure to, the amount, form, presence, emission, discharge, release, threat of release, processing, use, treatment, storage, disposal, handling, generation or production of any Hazardous Substance, including any permit, license, approval, consent or authorization required therefor; (ii) requires any reporting or dissemination of or access to information regarding Hazardous Substances, including warnings or notices to employees; or (iii) relates to or addresses human health or safety, including occupational health and safety. “ Hazardous Substance ” means (i) a substance that contains substances defined in or regulated under the following federal statutes and their state counterparts, as well as such statutes’ implementing regulations, as such statutes and regulations have been amended from time to time and as currently interpreted by administering agencies: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and Rodenticide Act, and the Clean Air Act; (ii) petroleum and petroleum products including crude oil and any fractions thereof; (iii) natural gas, synthetic gas and any mixtures thereof; and (iv) any substances with respect to which a federal, state or local agency requires environmental investigation, monitoring, reporting or remediation.

 

2.10 Intellectual Property Rights

 

(a) As used in this Agreement, “ Intellectual Property ” means any or all of the following: (i) works of authorship, computer programs, software, algorithms, documentation, designs, files, compilations, records and data; (ii) mask works, circuit designs and circuitry; (iii) inventions (whether or not patentable), improvements, ideas, procedures, processes, systems, methods, concepts, principles, discoveries, art, machines, compositions of matter, materials, formulas, patterns, devices, techniques, apparatus and technology; (iv) trade secret information, confidential information, proprietary information, know how, show how, technical data, customer lists and supplier lists; (v) prototypes, schematics and tools; (vi) trademarks, service marks, trade dress, logos, brands, trade names, and business names; (vii) World Wide Web addresses, uniform resource locators and Internet domain names; (viii) all embodiments of the foregoing in any form and in any media; (ix) any portion, copy or extract of any of the foregoing, irrespective of whether in tangible or intangible form, and irrespective of media, but does not include UL Listings, ISO 9000 qualifications and the like.

 

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(b) As used in this Agreement, “ Intellectual Property Rights ” (i) means all patents, patent rights, copyrights, maskwork rights, rights related to works of authorship, rights sometimes referred to as “moral rights,” trademark rights, service mark rights, trade dress rights, rights related to Internet domain names, and other intellectual property rights in any country, arising under statute, treaty, common law, or otherwise, and whether or not perfected by registration or other filing and (ii) includes (x) the right to apply for and obtain patents, copyright registrations, trademark registrations and other registrations related to Intellectual Property owned by the Business; (y) the right to sue for and recover damages for any past, present or future infringement of any Intellectual Property owned by the Business; and (z) with respect to all trademarks and service marks, the goodwill of the business to which each trademark and service mark relates, but does not include UL Listings, ISO 9000 qualifications and the like.

 

(c) Except as described in Schedule 2.10, the Company or the Parent owns or has the rights to use all Intellectual Property and Intellectual Property Rights used in the conduct of their respective businesses or that are necessary for the conduct of their respective businesses as now conducted.

 

(d) Schedule 2.10 includes an accurate and complete list of all patents, patent applications, copyright registrations, trademark registrations, applications for registration of trademarks, service mark registrations, applications for registration of service marks, domain name registrations and other filings owned by the Business related to Intellectual Property or Intellectual Property Rights.

 

(e) Schedule 2.10 includes an accurate and complete list of all trademarks, service marks, logos, brands, trade names, business names and domain names used by the Business.

 

(f) The Business has taken reasonable action to preserve the secrecy of all of its trade secret information and confidential information. Except pursuant to this Agreement and the other Operative Documents, the Business has no obligation to disclose to any Person any trade secret information or confidential information of the Business.

 

(g) Except as fully set forth in Schedule 2.10, the Business has not granted to any Person any right or license (including any present, future or contingent right) with respect to any Intellectual Property or Intellectual Property Rights.

 

(h) Schedule 2.10 includes an accurate and complete list of all license agreements and other agreements pursuant to which the Business has a right to use any Intellectual Property or Intellectual Property Rights other than standard off-the-shelf software owned by any Person other than the Business. The Business has the right to exercise all rights and licenses described in each of such agreements in accordance with the terms and conditions set forth in each of such respective agreements. The Business has not received written or, to Seller’s Knowledge, any other notice that any party to any of such agreements intends to cancel, terminate or refuse to renew any such agreement or to exercise or decline to exercise any option or right under any such agreement.

 

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(i) To Seller’s Knowledge, no Person is infringing or misappropriating any of the Intellectual Property owned by the Business or any of the Intellectual Property Rights owned or held by the Business.

 

(j) The Business does not and has not infringed, violated, interfered with or misappropriated any Intellectual Property or Intellectual Property Rights of any Person. To Seller’s Knowledge, neither the services performed by the Business nor the products manufactured by the Business infringe any Intellectual Property Rights of any Person. The Business has not received any written or, to Seller’s Knowledge, any other notice or claim asserting any infringement, misappropriation, misuse, abuse or interference with any Intellectual Property Rights by the Business, or claiming that any Person has any claim of infringement against the Business.

 

2.11 Real Property

 

(a) Schedule 2.11 includes a complete and accurate list of all the real estate that is or has ever been owned, leased or used by the Business (the “ Real Property ”), including real estate that is owned, leased or used pursuant to leases (the “ Real Property Leases ”). Schedule 2.11 lists all Real Property Leases, true and complete copies of which, including all amendments and addenda thereto, have been provided to Buyer or made available to Buyer in Seller’s online data room. The activities carried on in all buildings, plants, facilities, installations, fixtures and other structures or improvements included as part of, or located on or at, the Real Property, and the buildings, plants, facilities, installations, fixtures and other structures or improvements themselves, are not in violation of, or in conflict with, any applicable zoning regulations or ordinance or any other similar Law. All covenants or other restrictions (if any) to which any of the Real Property is subject are being in all respects properly performed and observed and, except for covenants contained in the Real Property Leases, do not provide for forfeiture or reversion of title if violated, and the Seller has not received any written or, to Seller’s Knowledge, any other notice of violation (or claimed violation) thereof. Seller has delivered to Buyer or made available to Buyer in Seller’s online data room true and complete copies of the plans, specifications, manuals, most recent title insurance policies and surveys (if any) for the Real Property in the possession of Seller, together with copies of all reports (if any) of any engineers, environmental consultants or other consultants in its possession relating to any of the Real Property. Except for Permitted Liens and as disclosed on Schedule 2.11 , the Business has not leased to another, subleased, encumbered, or permitted to be encumbered of any of its interests in the Real Property. As used in this Agreement, the term “Permitted Liens” means (a) Liens, including without limitation zoning and planning restrictions, and other charges and encumbrances of record, none of which either (i) impairs the ability to use the assets subject to the Lien in the ordinary course of business of the Company or the Parent as currently conducted or (ii) relates to indebtedness for borrowed money except for those Liens that are released at the Closing, (b) mechanics’, materialmen’s or contractors’ liens or encumbrances or any similar lien or restriction arising in the ordinary course of business consistent with past practice for amounts

 

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which are not delinquent or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established on the books of the Company or the Parent, as applicable (c) Liens for Taxes, assessments or governmental charges or levies on property which are not delinquent (d) Liens arising by operation of law, in the ordinary course of business that do not interfere in any material respect with the use or value of any of the assets subject thereto, (e) minor imperfections in title to real property that do not detract in any material respect from the value of the property affected or impair the operations of the Company or the Parent in any material respect, and (f) rights of and through lessors in leased property.

 

(b) Each separate location included in the Real Property has water supply, storm and sanitary sewer facilities, access to telephone, gas and electrical connections, fire protection, drainage and other public utilities, as needed and adequate for the respective businesses of the Company and Parent, as currently conducted, and has parking facilities adequate for the respective businesses of the Company and Parent, as currently conducted, and that meet all requirements imposed by applicable Laws. To Seller’s Knowledge, there is no current violation of any Law relative to any of the Real Property.

 

(c) To Seller’s Knowledge, there is no pending, threatened or proposed proceeding or governmental action to modify the zoning classification of, or to condemn or take by the power of eminent domain (or to purchase in lieu thereof), or to classify as a landmark, or to impose special assessments on, or otherwise to take or restrict in any way the right to use, develop or alter, all or any part of the Real Property for its current use in the respective businesses of the Company and Parent.

 

(d) All the Real Property Leases are in full force and effect, valid and enforceable in accordance with their respective terms, except as such enforceability may be limited or affected by (i) applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws from time to time in effect that affect creditors’ rights generally or (ii) general equitable principles (whether considered by a court of law or equity). None of the Real Property Leases has been amended or modified except as set forth on Schedule 2.11 . Seller has not received any written or, to Seller’s Knowledge, any other notice of any, and there exists no, dispute, claim, event of default or event that constitutes or, to Seller’s Knowledge, would constitute (with notice or lapse of time or both) a default by the Business under any Real Property Lease. All rent and other amounts due and payable with respect to the Real Property Leases have been paid.

 

2.12 Tangible Personal Property

 

(a) Each item of equipment, machinery or other tangible personal property reflected on the Reference Balance Sheet or otherwise necessary to the conduct of the respective businesses of the Company and Parent, in each case as presently conducted, is either: (i) owned by the Business, free and clear of all Liens, except Permitted Liens,, and the Business has good and marketable title thereto; or (ii) leased pursuant to one or more valid and enforceable lease agreements. Such tangible personal property is well maintained and in good operating condition and repair, ordinary wear and tear excepted, and to Seller’s Knowledge is free from defects.

 

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(b) Schedule 2.12 sets forth a true and complete list of all of the tangible personal property with a value of greater than $5,000.00 used by the Business and sets forth all leases of personal property of greater than $5,000.00 in value binding on the Business or any of its assets or properties, and all items of personal property covered thereby. Seller has delivered to Buyer or made available to Buyer in Seller’s online data room true and complete copies of all such personal property leases.

 

(c) The assets, properties and rights of the Business were sufficient to produce the income for the fiscal years ended September 30, 2003 and September 30, 2004, as shown on the Annual Financial Statements.

 

2.13 Material Contracts

 

(a) Schedule 2.13 lists all material contracts and arrangements of the following types to which the Business is a party or by which it is bound, or to which any of its assets or properties is subject (collectively, the “ Material Contracts ”).

 

(i) any contract (other than Employee Benefit Plans, which are listed on Schedule 2.14(b) ) with any employee, officer, director or Stockholder of the Business;

 

(ii) any contract with a sales representative, manufacturer’s representative, distributor, dealer, broker, sales agency, advertising agency or other Person engaged in sales, distributing or promotional activities;

 

(iii) any contract that involves the payment or receipt of cash or other property, an unperformed commitment, or goods or services, having a value in excess of $50,000.00;

 

(iv) any contract pursuant to which the Business has made or will make loans or advances, or has or will have incurred debts or become a guarantor or surety or pledged its credit on or otherwise become responsible with respect to any undertaking of another (except for the negotiation or collection of negotiable instruments in transactions in the ordinary course of business);

 

(v) any indenture, credit agreement, loan agreement, note, mortgage, security agreement, lease of real property or personal property, loan commitment or other contract or arrangement relating to the borrowing of funds, an extension of credit or financing;

 

(vi) any contract involving any restrictions with respect to the geographical area of operations or scope or type of business;

 

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(vii) any power of attorney or agency agreement or arrangement with any Person pursuant to which such Person is granted the authority to act for or on behalf of the of the Business, or the Business is granted the authority to act for or on behalf of any Person;

 

(viii) any contract relating to the Business’s computer system;

 

(ix) any contract for which the full performance thereof may extend beyond 60 days from the date of this Agreement; and

 

(x) any contract not made in the ordinary course of business that is to be performed in whole or in part at or after the date of this Agreement.

 

Seller has delivered to Buyer or made available to Buyer in Seller’s online data room true and complete copies of each document listed on Schedule 2.13 , including amendments thereto, and a written description of each oral agreement or arrangement so listed.

 

(b) With respect to the Material Contracts, (i) each Material Contract is valid, binding and enforceable in accordance with its terms, except as such enforceability may be limited or affected by (y) applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws from time to time in effect that affect creditors’ rights generally or (z) principles of equity, whether considered in a court of law or equity; (ii) the Business is not in default under or in violation of any provision of any of the Material Contracts; (iii) Seller has not received written or, to Seller’s Knowledge, any other notice of alleged nonperformance or other noncompliance with respect to the obligations of the Business under any of the Material Contracts, which alleged nonperformance or other noncompliance is currently unresolved, nor any written, or to Seller’s Knowledge, any other notice that is currently unresolved that any of the Material Contracts may be totally or partially terminated or suspended by any other party thereto; and (iv) to Seller’s Knowledge, there is no material nonperformance, breach or other noncompliance by any other party to any of the Material Contracts.

 

2.14 Employee Benefit Matters

 

(a) As used in this Agreement, the following terms shall have the following meanings:

 

(i) “ COBRA ” means the health care continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and all regulations and rulings in effect thereunder.

 

(ii) “ Code ” means the Internal Revenue Code of 1986, as amended, and all regulations and rulings in effect thereunder.

 

(iii) “ Employee Benefit Plan ” means any retirement, pension, profit sharing, deferred compensation, stock bonus, savings, bonus, incentive, cafeteria, medical, dental, vision, hospitalization, life insurance, accidental death and dismemberment, medical expense reimbursement, dependent care assistance, tuition reimbursement, disability, sick

 

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pay, holiday, vacation, severance, change of control, stock purchase, stock option, restricted stock, phantom stock, stock appreciation rights, fringe benefit or other employee benefit plan, fund, policy, program, contract, arrangement or payroll practice of any kind (including any “employee benefit plan,” as defined in Section 3(3) of ERISA) or any employment, consulting or personal services contract, whether written or oral, qualified or nonqualified, funded or unfunded, or domestic or foreign, (i) sponsored, maintained or contributed to by the Company or to which the Company is a party, (ii) covering or benefiting any current or former officer, employee, agent, director or independent contractor of the Company (or any dependent or beneficiary of any such individual), or (iii) with respect to which the Company has (or could reasonably be expected to have) any obligation or liability.

 

(iv) “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and all regulations and rulings in effect thereunder.

 

(v) “ ERISA Affiliate ” means any corporation, partnership, limited liability company, sole proprietorship, trade, business or other entity or organization that, together with the Company, is or was treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

 

(vi) “ Governmental Entity ” means any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

 

(vii) “ HIPAA ” means the Health Insurance Portability and Accountability Act of 1997, as amended, and all regulations and rulings in effect thereunder.

 

(viii) “ IRS ” means the United States Internal Revenue Service.

 

(b) Schedule 2.14(b) contains a complete and accurate list of all Employee Benefit Plans. None of the Company, Parent or any ERISA Affiliate has any agreement, arrangement, commitment or obligation, whether formal or informal, whether written or unwritten and whether legally binding or not, to create, enter into or contribute to any additional Employee Benefit Plan, or to modify or amend any existing Employee Benefit Plan. There has been no amendment, interpretation or other announcement (written or oral) by the Company, Parent or any other Person relating to, or change in participation or coverage under, any Employee Benefit Plan that, either alone or together with other such items or events, could materially increase the expense to the Company of maintaining (or participating in) such Employee Benefit Plan (or the Employee Benefit Plans taken as a whole) above the level of expense incurred with respect thereto for the most recent fiscal year included in the Financial Statements. Except as disclosed in Schedule 2.14(b), the terms of each Employee Benefit Plan permit the Company to amend and terminate such Employee Benefit Plan (or its participation therein, as applicable) at any time and for any reason without penalty and without material liability or expense. None of the rights of the Company under any Employee Benefit Plan will be impaired in any way by this Agreement or the consummation of the transactions contemplated by this Agreement.

 

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(c) Seller has provided to Buyer true, correct and complete copies (or, in the case of unwritten Employee Benefit Plans, descriptions) of all Employee Benefit Plans (and all amendments thereto), along with, to the extent applicable to the particular Employee Benefit Plan, copies of the following: (i) the last three annual reports (Form 5500 series) filed with respect to such Employee Benefit Plan; (ii) the most recent summary plan description, and all summaries of material modifications related thereto, distributed with respect to such Employee Benefit Plan; (iii) all contracts and agreements (and any amendments thereto) relating to such Employee Benefit Plan, including, without limitation, all trust agreements, investment management agreements, annuity contracts, insurance contracts, bonds, indemnification agreements and service provider agreements; (iv) the most recent determination letter issued by the IRS with respect to such Employee Benefit Plan; (v) the most recent annual actuarial valuation prepared for such Employee Benefit Plan; (vi) all written communications during the last three years relating to the amendment, creation or termination of such Employee Benefit Plan, or an increase or decrease in benefits, acceleration of payments or vesting or other events that could result in liability to the Company; (vii) all material correspondence to or from any Governmental Entity relating to such Employee Benefit Plan; (viii) samples of all administrative forms currently in use with respect to such Employee Benefit Plan, including, without limitation, all COBRA and HIPAA forms and notices; (ix) all coverage, nondiscriminati