Exhibit 10.13

 

 

 

 

 

 

 

 

 

 

 

STOCK PURCHASE AGREEMENT

 

by and among

 

SIMULATIONS PLUS, INC.,

 

DILISYM SERVICES, INC.,

 

THE SHAREHOLDERS’ REPRESENTATIVE

 

and

 

THE SHAREHOLDERS OF DILISYM SERVICES, INC.

 

 

 

 

 

 

 

 

 

 

   

 

 

 

TABLE OF CONTENTS     Page ARTICLE I PURCHASE AND SALE OF THE PURCHASED SHARES 1
Section 1.1 Transaction 1 Section 1.2 Purchase Price 2 Section 1.3 Payment
Procedures 2 Section 1.4 Funds Flow Memorandum 3 Section 1.5 Stock Options 3
Section 1.6 Holdback 3 Section 1.7 Further Assurances 3 Section 1.8
Shareholders’ Representative 4 Section 1.9 Working Capital Adjustment 6 Section
1.10 Repayment of Company Indebtedness and Transaction Expenses 8 Section 1.11
Earn-Out 9 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS 12 Section 2.1 Organization and Qualification; Subsidiaries 12
Section 2.2 Certificate of Incorporation and Bylaws 12 Section 2.3
Capitalization 12 Section 2.4 Authority Relative to this Agreement 13 Section
2.5 Governmental Authorization and Consents 13 Section 2.6 Non-contravention 14
Section 2.7 Title to Properties; Absence of Liens; Sufficiency of Assets 14
Section 2.8 Financial Statements; Related Information 14 Section 2.9 Absence of
Certain Changes 15 Section 2.10 Related Party Transactions 17 Section 2.11
Material Contracts 17 Section 2.12 No Undisclosed Liabilities 19 Section 2.13
Litigation 20 Section 2.14 Compliance with Laws and Court Orders 20 Section 2.15
Licenses and Permits 20 Section 2.16 Governmental Contracts 20 Section 2.17
Proprietary Rights 20 Section 2.18 Taxes 23 Section 2.19 Real Property 24
Section 2.20 Environmental Matters 25 Section 2.21 Insurance Coverage 26 Section
2.22 Employee Benefit Plans 27 Section 2.23 Employees 28 Section 2.24 Labor
Matters 28 Section 2.25 Books and Records 29 Section 2.26 Customers; Suppliers
29 Section 2.27 Customer or Third-Party Approval 29

 

 

 

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Section 2.28 Absence of Unlawful Payments 30 Section 2.29 International Trade 30
Section 2.30 Service or Product Liability 30 Section 2.31 Finders’ Fees 30
Section 2.32 Bank Accounts and Powers of Attorney 30 Section 2.33 Consortium
Agreement 31 Section 2.34 Full Disclosure 31 ARTICLE IIA. REPRESENTATIONS AND
WARRANTIES OF COMPANY SHAREHOLDERS 32 Section 2A.1. Valid Title 32 Section 2A.2.
Authorization; Binding Effect 32 Section 2A.3. Governmental Authorization and
Consents 32 Section 2A.4. Non-contravention 32 ARTICLE III REPRESENTATIONS AND
WARRANTIES OF PURCHASER 33 Section 3.1 Corporate Existence and Power 33 Section
3.2 Corporate Authorization; Binding Effect 33 Section 3.3 Governmental
Authorization 33 Section 3.4 Non-contravention 33 Section 3.5 Litigation 33
ARTICLE IV CONDUCT OF BUSINESS 34 Section 4.1 Conduct of Business by the Company
Pending the Transaction 34 Section 4.2 Filing of Tax Returns 36 ARTICLE V
COVENANTS 39 Section 5.1 Access to Information; Confidentiality 39 Section 5.2
Consents; Approvals 39 Section 5.3 Litigation and Investigations Support 39
Section 5.4 No Solicitation of Competing Transaction 40 Section 5.5 Notification
of Certain Matters 40 Section 5.6 Further Action 41 Section 5.7 Preliminary
Closing Balance Sheet; Interim Balance Sheet 41 Section 5.8 Updating of Company
Disclosure Schedule 41 ARTICLE VI CONDITIONS TO THE CLOSING 42 Section 6.1
Conditions to Obligation of Each Party to Effect the Transaction 42 Section 6.2
Additional Conditions to Obligation of Purchaser to Effect the Transaction 42
Section 6.3 Additional Conditions to Obligation of the Company and the
Shareholders to Effect the Transaction 45 ARTICLE VII TERMINATION 46 Section 7.1
Termination 46 Section 7.2 Effect of Termination 46 ARTICLE VIII INDEMNIFICATION
47 Section 8.1 Indemnification by Shareholders 47 Section 8.2 No Contribution;
Shareholders’ Representative 49 Section 8.3 Indemnification by Purchaser 49

 

 

 

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Section 8.4 Survival 49 Section 8.5 Certain Limitations 50 Section 8.6 Notice of
Indemnification Claims; Notice of Claims 51 Section 8.7 Determination of Losses
53 Section 8.8 Right of Set-Off 53 ARTICLE IX MISCELLANEOUS PROVISIONS 54
Section 9.1 Amendment and Modifications 54 Section 9.2 Waiver of Compliance 54
Section 9.3 Expenses 54 Section 9.4 Waiver 54 Section 9.5 Dispute Resolution 55
Section 9.6 Notices 55 Section 9.7 Assignment 56 Section 9.8 Publicity 56
Section 9.9 Governing Law 57 Section 9.10 Counterparts 57 Section 9.11 Headings
57 Section 9.12 Incorporation of NDA 57 Section 9.13 Entire Agreement 57 Section
9.14 Assignments, Successors, and No Third-Party Rights 57 Section 9.15 Further
Assurances 58 Section 9.16 Representation by Counsel; Interpretation 58 Section
9.17 Certain Definitions 58 Section 9.18 Rules of Construction 64

 

 

Company Disclosure Schedule

Schedule 1.11 – Earn-Out Schedule

Exhibit A – Form of Non-Competition Agreement

Exhibit B – Form of General Release of Claims

 

 

 

 

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DEFINED TERMS

 

Acquisition Proposal, 58

Adjusted EBT, 58

Adjustment Amount, 8

Affiliate, 58

Agreement, 1

Articles, 64

Assuming Party, 52

Audited Financial Statements, 58

Basket, 50

Board, 1

Business Day, 59

Cap, 50

Cash Consideration, 2

Claims, 47

Closing, 1

Closing Balance Sheet, 6

Closing Date, 2

Closing Statements, 6

COBRA, 59

Code, 59

Company, 26

Company Adjustment Amount, 8

Company Common Stock, 59

Company Data Site, 59

Company Disclosure Schedule, 12

Company Indemnitees, 49

Company IP Rights, 20

Company Policies, 26

Company’s Knowledge, 61

Contemplated Transactions, 59

Control, 59

Dispute, 55

Dispute Notice, 55

Earn-Out Calculation, 9

Earn-Out Calculation Statement, 9

Earn-Out Payment, 9

Earn-Out Years, 59

Employee Plans, 27

Environmental Laws, 26

Environmental Permits, 26

ERISA, 27

ERISA Affiliate, 27

 

Extended Representations, 49

FCPA, 30

Financial Statements, 14

Flow of Funds Memorandum, 2

Fundamental Representations, 49

GAAP, 59

Government Agency, 60

Government Contract, 60

Government Contract Proposal, 60

Governmental Authority, 60

Governmental Authorization, 60

Holdback Amount, 2

Holdback Release Date, 60

Indebtedness, 60

Indemnification Notice, 51

Indemnification Objection Notice, 52

Indemnitees, 49

Independent Accountant, 7

Independent Firm, 61

Intellectual Property Rights, 61

Interim Balance Sheet, 61

Interim Balance Sheet Date, 61

Interim Financials Certificate, 41

JAMS, 61

Knowledge, 61

Law or Laws, 61

Licensed Intellectual Property, 61

Liens, 61

Losses, 62

Majority Shareholders, 62

Material Adverse Effect, 62

Material Contract, 17

Materials of Environmental Concern, 26

NDA, 62

Net Working Capital, 62

Non-Competition Agreement, 43

Off-the-Shelf Software, 62

Order, 62

Other Securities, 44

Owned Intellectual Property, 21

Ownership Rights, 48

Payoff Letters, 8

 

 

 

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Payroll Company, 28

Permits, 20

Permitted Indemnification Claims, 52

Person, 62

Preliminary Cash Consideration, 2

Preliminary Closing Balance Sheet, 6

Preliminary Working Capital Statement, 6

Pro Rata Portion, 63

Purchase Price, 2

Purchased Shares, 1

Purchaser, 1

Purchaser Adjustment Amount, 8

Purchaser Deficit, 8

Purchaser Indemnitee, 47

Real Property Leases, 17

Related Parties, 17

Related Party Agreements, 17

Sections, 64

Securities Act, 63

Shareholder Excess, 8

 

Shareholder Release, 45

Shareholders, 1

Shareholders’ Representative, 4

Stock, 13

Stock Options, 13

Subsidiary, 63

Target Net Working Capital, 63

Tax, 63

Tax Return, 63

Tax Sharing Agreement, 63

Taxes, 63

Terminating Breach, 46

Termination Liability, 64

Transaction, 1

Transaction Documents, 64

Transaction Expense Schedule, 2

Transaction Expenses, 64

WARN, 64

Working Capital Statement, 6

 

 

 

 

 

 

 

 

 

 

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STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of May 1, 2017, is
entered into by and among DILISYM SERVICES, INC., a North Carolina corporation
(the “Company”), SIMULATIONS PLUS, INC., a California corporation (“Purchaser”),
the shareholders of the Company listed on the signature pages hereto (the
“Shareholders”), and Brett A. Howell (“Shareholders’ Representative”).

 

WHEREAS, the Company, the Shareholders and Purchaser have determined that it is
advisable and in the best interest of their respective shareholders for
Purchaser to acquire all of the Company’s outstanding capital stock (the
“Purchased Shares”), upon the terms and subject to the conditions set forth in
this Agreement (the “Transaction”);

 

WHEREAS, the Board of Directors of the Company (the “Board”) has approved this
Agreement and the Contemplated Transactions and declared the advisability and
resolved to recommend approval of the Transaction and adoption of this Agreement
by the Shareholders;

 

WHEREAS, the Company, Purchaser, the Shareholders and the Shareholders’
Representative desire to make certain representations, warranties, covenants and
agreements in connection with this Agreement;

 

WHEREAS, in connection with this Agreement, it is contemplated that, subject to
the terms and conditions set forth in this Agreement, on the date hereof or at
the Closing, the Shareholders, or the Shareholders’ Representative on their
behalf, and the Purchaser will enter into the Transaction Documents; and

 

NOW, THEREFORE, subject to and in consideration of the foregoing and the mutual
covenants and agreements, terms and conditions herein contained, and intending
to be legally bound hereby, the Company, Purchaser, the Shareholders and the
Shareholders’ Representative hereby agree as follows:

 

Article I
PURCHASE AND SALE OF THE PURCHASED SHARES

 

Section 1.1 Transaction.

 

(a)       Purchase and Sale. On the terms and subject to the conditions set
forth in this Agreement, at the Closing, the Shareholders shall sell, convey,
assign, transfer and deliver to the Purchaser, and the Purchaser shall purchase,
acquire and accept from the Shareholders, all of the Shareholders’ right, title
and interest in and to the Purchased Shares, free and clear of all Liens.

 

(b)       Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Transaction (“Closing”) will take place as
promptly as practicable (and in any event within five (5) Business Days) after
satisfaction or waiver of the conditions set forth in Article VI, at the
principal offices of Procopio, Cory, Hargreaves & Savitch LLP, 12544 High Bluff
Drive, Suite 300, San Diego, California 92130, unless another date and time or
place is agreed to in writing by the parties hereto (the “Closing Date”).

 

 

 

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Section 1.2 Purchase Price.

 

(a)       Subject to the terms and conditions of this Agreement and to the
adjustments set forth herein, the aggregate Transaction consideration (the
“Purchase Price”) shall consist of:

 

(i)       cash in amount equal to the sum of (A) Five Million Dollars
($5,000,000), minus (x) the Transaction Expenses set forth on the Transaction
Expense Schedule, minus (y) the amount of Indebtedness of the Company,
(collectively, the “Preliminary Cash Consideration”), minus (B) the Purchaser
Adjustment Amount, if any, plus (C) the Company Adjustment Amount, if any, minus
(iv) One Million Dollars ($1,000,000) (the “Holdback Amount”), subject to
adjustment as provided herein (collectively, the “Cash Consideration”); and

 

(ii)       the Earn-Out Consideration.

 

(b)       Not less than two (2) Business Days prior to the Closing Date, the
Company shall deliver to Purchaser a schedule (the “Transaction Expense
Schedule”) of the Company signed by the President of the Company and the
Shareholders’ Representative, which schedule shall set forth the Transaction
Expenses to be paid at Closing by Purchaser on behalf of the Company as provided
herein, along with wire transfer instructions for any such payments. At Closing
Purchaser shall pay, on behalf of the Company, to the parties identified in the
Transaction Expense Schedule the amounts identified in the Transaction Expense
Schedule (which amounts shall reduce the Preliminary Cash Consideration payable
to Shareholders at Closing).

 

Section 1.3 Payment Procedures. The Purchase Price which shall be paid by
Purchaser on the Closing Date as follows in the form of wire transfers to the
accounts set forth in a flow of funds memorandum to be provided by the
Shareholders’ Representative to the Purchaser at the Closing, in a form
satisfactory to the Purchaser (the “Flow of Funds Memorandum”):

 

(a)       the Holdback Amount shall be withheld by the Purchaser as security for
certain potential adjustments to the Purchase Price pursuant to Section 1.9
below and for the indemnification obligations set forth in Article VIII;

 

(b)       an amount equal to the Indebtedness, on behalf of the Company, as
directed by and in accordance with the terms of payoff letters;

 

(c)       the Transaction Expenses, on behalf of the Company, the Shareholders
and their Affiliates, as applicable, as directed by and in accordance with the
Payoff Letters; and

 

 

 

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(d)       the balance of the Closing Consideration, after making the payments
set forth in clauses (a) through (c) hereof to the Shareholders.

 

Section 1.4 Funds Flow Memorandum. Notwithstanding anything to the contrary in
this Agreement or elsewhere, Purchaser shall not be in any way responsible for
or liable in connection with any aspect or component of the Closing Funds Flow
Memorandum provided to Purchaser by the Shareholders’ Representative on or prior
to the Closing Date, including: (i) any determination or calculation of any
amounts payable pursuant to the Funds Flow Memorandum; (ii) the inclusion of any
amount payable in or the omission of any amount payable from the Funds Flow
Memorandum; or (iii) any error or omission with respect to the third parties to
whom payments are to be made pursuant to the Funds Flow Memorandum.

 

Section 1.5 Stock Options. Prior to the Closing, the Shareholders shall take, or
shall cause the Company to take, all actions necessary to cancel, rescind and/or
exercise all Stock Options outstanding, whether or not exercisable, whether or
not vested as of the Closing, and which are outstanding immediately prior to the
Closing. As of the Closing, the Shareholders shall have taken all actions
necessary to ensure that there is no further or continuing obligation or
liability of any kind with respect to the exercise, cash out or other
disposition of any Stock Options, including any payroll or other Taxes with
respect thereto.

 

Section 1.6 Holdback. At the Closing, the Holdback Amount shall be withheld by
Purchaser from the Purchase Price otherwise payable to the Shareholders, and
Purchaser shall hold such Holdback Amount in accordance with the terms of this
Agreement until the Holdback Release Date. Notwithstanding anything in this
Agreement to the contrary, if Purchaser has given written notice to the
Shareholders’ Representative of one or more Claims made prior to the Holdback
Release Date pursuant to Section 8.6 of this Agreement or any other section of
this Agreement providing for payment of Losses from the remaining Holdback
Amount and all such Claims have not been finally resolved prior to the Holdback
Release Date, Purchaser shall withhold from its delivery of the portion of the
remaining Holdback Amount otherwise required to be remitted on the Holdback
Release Date, pending resolution of such Claims, an amount of cash that
represents Purchaser’s good faith estimate of the amount to which it would be
entitled if it prevailed with respect to such Claims. If, upon final resolution
of all such Claims, the aggregate amount withheld by the Purchaser is greater
than the Shareholders’ aggregate liability with respect to all such Claims, then
the Purchaser shall deliver to the Shareholders’ Representative, for the benefit
of the Shareholders, the Holdback Amount in an amount equal to such difference.
Subject to the terms and conditions herein, each Shareholder shall be entitled
to receive from the Shareholders’ Representative, on behalf of Purchaser, as
promptly as practicable following the Holdback Release Date and if applicable,
such later date as all Claims are finally resolved, such Shareholder’s Pro Rata
Portion of the remaining Holdback Amount as set forth in Section 8.8.

 

Section 1.7 Further Assurances. If, at any time after the Effective Time, the
Purchaser considers or is advised that any deeds, bills of sale, assignments,
consents, assurances or any other actions or things are necessary or desirable
to vest, perfect or confirm of record or otherwise in the Purchaser its right,
title or interest in, to or under any of the rights, properties, or assets of
the Company, or otherwise to carry out the intent and purposes of this
Agreement, the Shareholders will execute and deliver all such deeds, bills of
sale, assignments, consents and assurances and to take and do, all such other
actions and things as Purchaser may determine to be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in Purchaser and the Company to carry out the
intent and purposes of this Agreement.

 

 

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Section 1.8 Shareholders’ Representative.

 

(a)       Through signature on this Agreement and/or approval of this Agreement,
each of the Shareholders hereby appoints Brett A. Howell as such Shareholder’s
exclusive agent and attorney-in-fact (the “Shareholders’ Representative”) to
give and receive notices and communications with respect to the provisions of
this Agreement, and to agree to, negotiate, enter into settlements or
compromises of matters arising under this Agreement, and to take any and all
actions necessary or appropriate in the judgment of the Shareholders’
Representative to be taken on behalf of the Shareholders under this Agreement.
Such agency is irrevocable other than as set forth in this Agreement and coupled
with an interest. Notices or communications to or from the Shareholders’
Representative shall constitute notice to or from the Shareholders in respect of
matters under this Agreement. The Shareholders agree that a decision, act,
consent or instruction of the Shareholders’ Representative shall constitute a
decision of all Shareholders, and shall be final, binding and conclusive upon
each Shareholder, and Purchaser may rely upon any decision, act, consent or
instruction of the Shareholders’ Representative as being the decision, act,
consent or instruction of all Shareholders. Purchaser and its Affiliates shall
not be liable in any way to the Shareholders based on any act or omission of the
Shareholders’ Representative relating to this Agreement.

 

(b)       The Shareholders’ Representative shall be liable to the Shareholders
only for his proven bad faith, willful misconduct, or gross negligence, as
determined in light of all the circumstances, including the time and facilities
available to him in the ordinary conduct of business. In determining the
occurrence of any event or contingency, the Shareholders’ Representative may
request from any of the Shareholders or any other Person such reasonable
additional evidence as the Shareholders’ Representative in his sole discretion
may deem necessary to determine any fact relating to the occurrence of such
event or contingency, and may at any time inquire of and consult with others,
including any of the Shareholders, and may obtain legal advice, and the
Shareholders’ Representative shall not be liable to any Shareholder for any
damages resulting from his delay in acting hereunder pending his receipt and
examination of additional evidence, counsel or advice requested by him.

 

(c)       The Shareholders’ Representative is authorized, in his sole
discretion, to comply with final, nonappealable orders issued or process entered
by any court of competent jurisdiction with respect to the Holdback Amount. If
any portion of the Holdback Amount is disbursed to the Shareholders’
Representative and is at any time attached, garnished or levied upon under any
court order, or in case the payment, assignment, transfer, conveyance or
delivery of any such property shall be stayed or enjoined by any court order, or
in case any order, writ, judgment or decree shall be made or entered by any
court affecting such property or any part thereof, then and in any such event,
the Shareholders’ Representative is authorized, in his sole discretion, but in
good faith, to rely upon and comply with any such order, writ, judgment or
decree which he is advised by legal counsel selected by him is binding upon it
without the need for appeal or other action; and if the Shareholders’
Representative complies with any such order, writ, judgment or decree, he shall
not be liable to any Shareholder or to any other Person by reason of such
compliance even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.

 

 

 

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(d)       In no event shall the Shareholders’ Representative be liable to any
Shareholder for incidental, indirect, special, consequential or punitive
damages.

 

(e)       The Shareholders’ Representative shall be entitled to reimbursement
for expenses (including attorneys’ fees) that are incurred by Shareholders’
Representative in connection with his performance hereunder. Each Shareholder
shall be liable for its pro rata share (based on their respective Pro Rata
Portion of the Purchased Shares immediately prior to the Closing Date) of such
excess expenses (including attorneys’ fees).

 

(f)       In the event that any Shareholder pays Purchaser and/or Shareholders’
Representative any amounts pursuant to this Agreement in excess of such
Shareholder’s Pro Rata Portion of such amount, such Shareholder shall be
entitled to reimbursement for the amount of any such payments in excess of such
Shareholder’s Pro Rata Portion of such amount out of (and any such amounts shall
be deducted by the Shareholders’ Representative from) any future Holdback Amount
that is distributed to the Shareholders’ Representative for future distribution
to the Shareholders prior to Shareholders’ Representative’s distribution of such
Holdback Amount to the Shareholders.

 

(g)       If the Shareholders’ Representative resigns (by giving at least sixty
(60) days’ written notice of such resignation to Purchaser) or dies or becomes
incapable of continuing to act as the Shareholders’ Representative for any
reason, a successor Shareholders’ Representative (who shall either be a
Shareholder or another Person reasonably acceptable to Purchaser) shall be
appointed in writing by a majority in interest of the Shareholders (which for
purposes of this Agreement shall be based on their respective Pro Rata Portion
of the Purchased Shares immediately prior to the Closing Date), such appointment
to become effective upon the delivery of executed counterparts of such writing
to Purchaser, together with an acknowledgement signed by the successor
Shareholders’ Representative named in such writing that he, she or it accepts
the responsibility of successor Shareholders’ Representative and agrees to
perform and be bound by all provisions of this Agreement applicable to the
Shareholders’ Representative. Pending the election of a successor Shareholders’
Representative, the Shareholder that has the largest aggregate stake in the
Purchase Price immediately following the Effective Time (excluding any former
Shareholders’ Representative) shall act as the interim Shareholders’
Representative. Failing such appointment, Purchaser or any Shareholder may apply
to a court of competent jurisdiction for the appointment of a successor
Shareholders’ Representative.

 

 

 

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(h)       A majority in interest of the Shareholders (based on their respective
Pro Rata Portion of Purchased Shares immediately prior to the Closing Date)
shall have the right at any time during the term of this Agreement to remove the
then-acting Shareholders’ Representative and to appoint a successor
Shareholders’ Representative (who shall either be a Shareholder or another
Person reasonably acceptable to Purchaser); provided, however, that such removal
of the then-acting Shareholders’ Representative shall not be effective until the
delivery to Purchaser of executed counterparts of a writing signed by a majority
in interest of the Shareholders with respect to such removal and appointment,
together with an acknowledgement signed by a successor Shareholders’
Representative appointed in such writing that he, she or it accepts the
responsibility of successor Shareholders’ Representative and agrees to perform
and be bound by all of the provisions of this Agreement applicable to the
Shareholders’ Representative.

 

(i)       Each interim and successor Shareholders’ Representative shall have all
the power, authority, rights and privileges conferred by this Agreement upon the
original Shareholders’ Representative, and the term Shareholders’ Representative
as used herein shall be deemed to include any interim or successor Shareholders’
Representative.

 

(j)       Any notices given by Purchaser while there is no Shareholders’
Representative shall be sufficiently given if given to the Shareholder with the
largest stake in the Holdback Amount immediately following the Effective Time
(excluding the former Shareholders’ Representative). A copy of all such notices
shall be delivered to the successor Shareholders’ Representative upon his, her
or its appointment and he, she or it shall have five (5) days thereafter to take
such actions as may be required under the terms of this Agreement in connection
with any such notice.

 

Section 1.9 Working Capital Adjustment.

 

(a)       No later than three (3) Business Days prior to the Closing Date, and
as one of the conditions to Closing described in Section 6.2 hereof, the
Shareholders’ Representative shall cause to be delivered to Purchaser a
preliminary balance sheet of Company dated as of the Closing Date (the
“Preliminary Closing Balance Sheet”), together with a written statement setting
forth in reasonable detail its determination of the Company’s current assets and
its current liabilities as of that date and an estimate of the Company’s Net
Working Capital (the “Preliminary Working Capital Statement”). The Preliminary
Closing Balance Sheet and the Preliminary Working Capital Statement shall be
prepared in accordance with GAAP and Section 1.9.

 

(b)       Within ninety (90) calendar days after the Closing Date, Purchaser
will prepare or cause to be prepared, and will provide to the Shareholders’
Representative, a balance sheet of the Company as of the Closing Date (the
“Closing Balance Sheet”), together with a working capital statement setting
forth in reasonable detail its determination of the Company’s Net Working
Capital as of the Closing Date (“Working Capital Statement”). The Closing
Balance Sheet and Working Capital Statement (collectively, the “Closing
Statements”) will be prepared in accordance with GAAP. Subject to a customary
confidentiality agreement being in effect (which agreement shall allow the
Shareholders’ Representative to discuss these matters with the Shareholders),
Purchaser shall provide to Shareholders’ Representative reasonable supporting
documentation for the Closing Statements concurrently with the delivery thereof
and access to the appropriate books, records, employees and agents of the
Company (including by electronic means, to the extent available) and Purchaser
to allow Shareholders’ Representative to properly review the Closing Statements
(upon reasonable notice); provided, that Purchaser shall not be required to
provide any attorney-client privileged documents or communications.

 

 

 

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(c)       The Closing Statements shall be final and binding on the parties
unless Shareholders’ Representative, within thirty (30) calendar days following
its receipt thereof, delivers to Purchaser written notice of disagreement with
any of the Closing Statements, which notice shall describe in reasonable detail
the nature of such disagreement, and shall identify the specific items involved
and the dollar amount of the disagreement. If Shareholders’ Representative shall
raise any objections within the aforesaid thirty (30) calendar day period, then
the disputed matters shall be resolved by Shareholders’ Representative, on
behalf of the Shareholders, and Purchaser, in good faith. If Shareholders’
Representative and Purchaser are unable to resolve all disagreements within
thirty (30) calendar days after receipt by Purchaser of a written notice of
disagreement, or such longer period as may be agreed by Purchaser and
Shareholders’ Representative, then, either Shareholders’ Representative or
Purchaser may initiate procedures to finally resolve such disputes by providing
written notice of such intent to the non-initiating party. Promptly following
such written notice (but in any event within ten (10) Business Days),
Shareholders’ Representative and Purchaser shall jointly select a nationally
recognized independent public accounting firm that does not have an existing
business relationship with any of Purchaser, Shareholders’ Representative, the
Shareholders, or the Company (the “Independent Accountant”); provided, however,
that if Purchaser and Shareholders’ Representative are unable to select an
Independent Accountant within such time period, JAMS shall make such selection
as promptly as practicable thereafter. The Independent Accountant so selected
will consider only those items and amounts set forth in the Closing Statements
as to which Purchaser and Shareholders’ Representative have disagreed within the
time periods and on the terms specified above and must resolve the matter in
accordance with the terms and provisions of this Agreement. The Independent
Accountant may not assign a value greater than the greatest value for any such
item claimed by either Purchaser, on the one hand, or Shareholders’
Representative, on the other hand, or smaller than the value assigned to the
disputed item by Purchaser, on the one hand, or Shareholders’ Representative, on
the other hand, in the Closing Statements. In submitting a dispute to the
Independent Accountant, each of the parties shall concurrently furnish, at its
own expense, to the Independent Accountant and the other party, such documents
and information as the Independent Accountant may reasonably request; provided,
that neither party shall be required to provide any attorney-client privileged
documents or communications. Each party may also furnish to the Independent
Accountant such other information and documents as it deems relevant, with
copies of such submission and all such documents and information being
concurrently given to the other party. The Independent Accountant shall issue a
written report that sets forth the resolution of all items in dispute and that
contains, as applicable, (i) a final Closing Balance Sheet and/or (ii) a final
Working Capital Statement, according to the dispute(s) noticed. The report shall
be final and binding upon Purchaser, the Company, Shareholders’ Representative
and the Shareholders. The fees and expenses of the Independent Accountant
incurred in connection with the determination of the disputed items by the
Independent Accountant shall be allocated equally between Purchaser and
Shareholders’ Representative (solely on behalf of the Shareholders). Purchaser
and Shareholders’ Representative shall, and Purchaser shall cause the Company
to, cooperate fully with the Independent Accountant and respond on a timely
basis to all requests for information or access to documents or personnel made
by the Independent Accountant or by other parties hereto, all with the intent to
fairly and in good faith resolve all disputes relating to the Closing Statements
as promptly as reasonably practicable; provided, that neither party shall be
required to provide any attorney-client privileged documents or communications.

 

 

 

 7 

 

(d)       After the Closing Statements have been finally determined in
accordance with Section 1.09 (c), if the finally determined Net Working Capital
of the Company as of the Closing is less than the Target Net Working Capital
(the difference between such Net Working Capital of the Company as of the
Closing minus the Target Net Working Capital is referred to herein as the
“Purchaser Deficit”), then the Purchase Price shall be reduced by the amount of
Purchaser Deficit (“Purchaser Adjustment Amount”). Purchaser shall be entitled
to receive cash in an amount equal to the Purchaser Adjustment Amount, from the
Shareholders and, may either (i) elect to offset the Purchaser Adjustment Amount
against the Holdback Amount (without regards to the limitations of Article
VIII), or (ii) recover such amount directly from the Shareholders (in which
case, the Shareholders shall deliver such amount to Purchaser within five (5)
Business Days following such determination). If the finally determined Net
Working Capital of the Company as of the Closing is greater than the Target Net
Working Capital (the difference between such Net Working Capital of the Company
as of the Closing minus the Target Net Working Capital is referred to herein as
the “Shareholder Excess”), then the Purchase Price shall be increased by the
amount of the Shareholder Excess (“Company Adjustment Amount”, and together with
the Purchaser Adjustment Amount, as applicable, the “Adjustment Amount”). The
Shareholders shall be entitled to receive cash in the amount of the Company
Adjustment Amount, if any, from Purchaser. In the event of a Company Adjustment
Amount, Purchaser shall deliver such amount to the Shareholders within five (5)
Business Days following such determination.

 

Section 1.10 Repayment of Company Indebtedness and Transaction Expenses. At or
prior to the Closing, the Company shall repay and discharge, or cause to be
repaid and discharged, any and all Transaction Expenses not being paid directly
by the Shareholders and Indebtedness of the Company outstanding as of the
Closing Date, together with accrued and unpaid interest thereon. Prior to the
Closing Date, the Company shall submit reasonably satisfactory documentation
(“Payoff Letters”) setting forth (a) the amount of all Indebtedness outstanding
as of the Closing Date, including the identity of each lender thereof, dollar
amounts, wire instructions and any other information necessary to effect payment
therefore, and (b) an estimate of the Transaction Expenses, including in each
case the identity of each service provider, dollar amounts and any other
information necessary to effect payment therefore. The Company and the
Shareholders understand that all amounts of Indebtedness and Transaction
Expenses are the sole responsibility of the Company and the Shareholders, and
the amounts paid pursuant to this Section 1.10 are being made on the Company and
the Shareholders’ behalf and shall reduce the Preliminary Cash Consideration and
Purchase Price payable to the Shareholders under this Agreement. In no event
shall Purchaser or the Company have any liability or obligation regarding the
Indebtedness or Transaction Expenses. In connection with the repayment of
Indebtedness hereunder, the Company shall obtain releases of all Liens on the
assets, properties or capital stock of the Company securing any such
Indebtedness of the Company. At the Closing, the Company shall provide evidence
in writing reasonably satisfactory to Purchaser of such repayment of
Indebtedness of the Company and release of any and all Liens contemplated by
this Section 1.10, including, without limitation, Payoff Letters that are
reasonably acceptable to Purchaser and its lenders and UCC-3 termination
statements.

 

 

 

 8 

 

Section 1.11 Earn-Out.

 

(a)       Earn-Out Payment. Following the Closing, the Shareholders shall be
entitled to a payment (each, an “Earn-Out Payment”) equal to the Adjusted EBT
for each of the Earn-Out Years, as more fully set forth in this Section 1.11.
For avoidance of doubt, all items with respect to the Earn-Out Payment shall be
calculated in accordance with GAAP and Schedule 1.11.

 

(b)       Limitation. No Earn-Out Payment shall be due or payable for any
Earn-Out Year in which Adjusted EBT is a negative number. In no event will the
aggregate amount of all of the Earn-out Payments exceed Five Million Dollars
($5,000,000). The Earn-out Payments, if any, shall be considered part of the
Purchase Price to the extent permitted by Law.

 

(c)       Procedures Applicable to Determination of the Earn-Out Payments.

 

(i)       Purchaser shall consult with Shareholders’ Representative from time to
time during the period of the Earn-Out Years with regards to Adjusted EBT and,
no later than the date that is ninety (90) days after the last day of each
Earn-Out Year, Purchaser shall prepare and deliver to the Shareholders’
Representative a written statement (the “Earn-Out Calculation Statement”)
setting forth in reasonable detail its determination the Adjusted EBT, and its
calculation of the resulting Earn-Out Payment, if any (the “Earn-Out
Calculation”).

 

(ii)       The Earn-Out Calculation Statement shall be final and binding on the
parties unless Shareholders’ Representative, within thirty (30) calendar days
following its receipt thereof, delivers to Purchaser written notice of
disagreement with any of the Earn-Out Calculation Statement, which notice shall
describe in reasonable detail the nature of such disagreement, and shall
identify the specific items involved and the dollar amount of the disagreement.
If Shareholders’ Representative shall raise any objections within the aforesaid
thirty (30) calendar day period, then the disputed matters shall be resolved by
Shareholders’ Representative, on behalf of the Shareholders, and Purchaser, in
good faith. If Shareholders’ Representative and Purchaser are unable to resolve
all disagreements within thirty (30) calendar days after receipt by Purchaser of
a written notice of disagreement, or such longer period as may be agreed by
Purchaser and Shareholders’ Representative, then, either Shareholders’
Representative or Purchaser may initiate procedures to finally resolve such
disputes by providing written notice of such intent to the non-initiating party.
Promptly following such written notice (but in any event within ten (10)
Business Days), Shareholders’ Representative and Purchaser shall jointly select
an Independent Accountant; provided, however, that if Purchaser and
Shareholders’ Representative are unable to select an Independent Accountant
within such time period, JAMS shall make such selection as promptly as
practicable thereafter. The Independent Accountant so selected will consider
only those items and amounts set forth in the Earn-Out Calculation Statement as
to which Purchaser and Shareholders’ Representative have disagreed within the
time periods and on the terms specified above and must resolve the matter in
accordance with the terms and provisions of this Agreement. The Independent
Accountant may not assign a value greater than the greatest value for any such
item claimed by either Purchaser, on the one hand, or Shareholders’
Representative, on the other hand, or smaller than the value assigned to the
disputed item by Purchaser, on the one hand, or Shareholders’ Representative, on
the other hand, in the Earn-Out Calculation Statement. In submitting a dispute
to the Independent Accountant, each of the parties shall concurrently furnish,
at its own expense, to the Independent Accountant and the other party, such
documents and information as the Independent Accountant may reasonably request;
provided, that neither party shall be required to provide any attorney-client
privileged documents or communications. Each party may also furnish to the
Independent Accountant such other information and documents as it deems
relevant, with copies of such submission and all such documents and information
being concurrently given to the other party. The Independent Accountant shall
issue a written report that sets forth the resolution of all items in dispute
and that contains, as applicable, (i) a final Earn-Out Calculation Statement
and/or (ii) a final Earn-Out Calculation, according to the dispute(s) noticed.
The report shall be final and binding upon Purchaser, the Company, Shareholders’
Representative and the Shareholders. The fees and expenses of the Independent
Accountant incurred in connection with the determination of the disputed items
by the Independent Accountant shall be allocated equally between Purchaser and
Shareholders’ Representative (solely on behalf of the Shareholders). Purchaser
and Shareholders’ Representative shall, and Purchaser shall cause the Company
to, cooperate fully with the Independent Accountant and respond on a timely
basis to all requests for information or access to documents or personnel made
by the Independent Accountant or by other parties hereto, all with the intent to
fairly and in good faith resolve all disputes relating to the Earn-Out
Calculation Statement as promptly as reasonably practicable; provided, that
neither party shall be required to provide any attorney-client privileged
documents or communications.

 

 

 

 9 

 

(d)       Timing and Tax Treatment of Earn-Out Payments. Subject to Section
1.11(f) and Section 1.11(g) below, any Earn-Out Payment that Purchaser is
required to pay pursuant to Section 1.11(a) hereof shall be paid in full no
later than five (5) Business Days following the date upon which the
determination of the amount of any Earn-Out Payment becomes final and binding
upon the parties as provided in Section 1.11(c) (including any final resolution
of any dispute raised by the Shareholders’ Representative). Purchaser shall pay
to the Shareholders the applicable Earn-Out Payment in cash by wire transfer of
immediately available funds to the bank account(s) designated by the
Shareholders’ Representative. Any Earn-Out Payment shall be treated as an
adjustment to the Purchase Price by the parties for all applicable income tax
purposes, unless otherwise required by Law.

 

(e)       Post-Closing Operation of the Company. Subsequent to the Closing,
Purchaser shall have sole discretion with regard to all matters relating to the
operation of the Company and any Subsidiary and shall operate the Company in any
way it deems appropriate; provided, however, that from the Closing through the
Earn-Out Years: (i) Purchaser shall not intentionally take any action the
purpose of which is to decrease the Earnout Payment; provided that any action
taken to comply with GAAP or upon the advice of Purchaser’s auditors shall not
be deemed to be an action intentionally taken to decrease the Earnout Payment;
(ii) Purchaser shall not sell, liquidate or otherwise dispose of the operations
or equity interest in the Company unless the party acquiring such operations or
ownership interest expressly agrees in writing to be bound by the post-Closing
terms of this Agreement (including this Section 1.11) and to assume, and does in
fact assume, all of Purchaser’s obligations under this Agreement (including this
Section 1.11). For avoidance of doubt, Purchaser has no obligation to operate
the Company or any Subsidiary in order to achieve any Earn-Out Payment or to
maximize the amount of any Earn-Out Payment.

 

 

 

 10 

 

 

(f)       Audit Correction. Notwithstanding the foregoing, including
Sections 1.11(c) and (d), if the Company’s final audit for any Earn-Out Year
indicates the Earn-Out Calculation for such Earn-Out Year was incorrect,
Purchaser shall provide notice of such error, together with a duly corrected
Earn-Out Calculation to the Shareholders’ Representative setting forth any
overpayment or underpayment to the Shareholders for such Earn-Out Year, and such
corrected Earn-Out Calculation shall be final and binding on the parties
hereto.  The Shareholders shall pay to Purchaser any such overpayment, and the
Purchaser shall pay to the Shareholders any such underpayment, within five
Business Days of such notice under this Section 1.11(f) by wire transfer of
immediately available funds to the bank account(s) designated by Purchaser.

 

(g)       Right of Set-Off. Purchaser shall have the right to withhold and set
off any amount otherwise due to be paid to the Shareholders pursuant to this
Section 1.11 against the amount of (i) any Adjustment Amount owed to it pursuant
to Section 1.9 of this Agreement, and (ii) any Losses that any Purchaser
Indemnitee may be finally entitled to under Article VIII of this Agreement.

 

(h)       No Security. The Parties understand and agree that (i) the contingent
rights to receive any Earn-Out Payment shall not be represented by any form of
certificate or other instrument, are not transferable, except by operation of
Laws relating to descent and distribution, divorce and community property, and
do not constitute an equity or ownership interest in Purchaser or the Company or
any Subsidiary, (ii) the Shareholders shall not have any rights as a
securityholder of Purchaser or the Company or any Subsidiary as a result of any
Shareholder’s contingent right to receive any Earn-Out Payment hereunder, and
(iii) no interest is payable with respect to any Earn-Out Payment.

 

(i)       Condition of Non-Competition Agreement. Notwithstanding anything
contained in this Section 1.11 or otherwise in this Agreement, no Shareholder
shall be entitled to receive any Earn-out Payment otherwise payable to such
Shareholder pursuant to this Section 1.11 to the extent of Losses caused by such
Shareholder from the breach or other violation of the Non-Competition Agreement.

 

 

 

 11 

 

 

Article II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS

 

The Company and each of the Shareholders hereby, jointly and severally,
represent and warrant to Purchaser that on the date hereof and as of the Closing
Date that the following statements are true, correct and complete, except as
specifically set forth in the section of the written disclosure schedule
delivered on or prior to the date hereof by the Shareholders to Purchaser (the
“Company Disclosure Schedule”) which shall identify by section number the
provision of this Article II to which each exception relates, as follows:

 

Section 2.1 Organization and Qualification; Subsidiaries. The Company is a
corporation duly incorporated, validly existing and in good standing under the
law of its jurisdiction of incorporation, and the Company has the requisite
power and authority and is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, approvals
and orders necessary to own, lease and operate the properties it purports to
own, lease or operate and to carry on its business as it is now being conducted.
The Company is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary. The Company does not own or
lease property in any jurisdiction other than its jurisdiction of incorporation
and the jurisdictions referred to in the previous sentence. Except as set forth
on Section 2.1 of the Company Disclosure Schedule, no jurisdiction has claimed,
in writing or otherwise, that the Company is required to qualify as a foreign
corporation or other entity therein, and (except as aforesaid) the Company does
not file any franchise, income or other tax returns in any other jurisdiction
based upon the ownership or use of property therein or the derivation of income
therefrom. The Company has no subsidiaries and does not own, directly or
indirectly, (a) any capital stock (including ordinary share or preference share
capital), partnership or membership interest, unit of participation or other
similar interest (however designated) in any other Person and (b) any option,
warrant, purchase right, conversion right, exchange right or other contractual
obligation which would entitle the Company to acquire any such interest in any
Person or otherwise entitle the Company to share in the equity, profits,
earnings, losses or gains of such Person (including stock appreciation, phantom
stock, profit participation, change of Control bonus or other similar rights),
in any other corporation, partnership or other Person.

 

Section 2.2 Certificate of Incorporation and Bylaws. The Company has heretofore
furnished to Purchaser a true, complete and correct copy of its Certificate of
Incorporation and Bylaws, each as amended to date. Such Certificate of
Incorporation and Bylaws are in full force and effect. The Company is not in
violation of any material provisions of its Certificate of Incorporation or
Bylaws.

 

Section 2.3 Capitalization. The authorized capital stock of the Company consists
of One Million (1,000,000) shares of Common Stock. As of the date of this
Agreement, Seven Hundred Sixty-Six Thousand Twenty-Seven (766,027) shares of
Common Stock are issued and outstanding, all of which are validly issued, fully
paid and nonassessable, and none of which are held in treasury. There are no
shares of capital stock of the Company outstanding other than the Purchased
Shares. Except as set forth on Section 2.3 of the Company Disclosure Schedule,
no shares of Common Stock are issued, granted, outstanding or reserved for
future issuance for outstanding option to purchase shares of Company Common
Stock (each a “Stock Option” and, collectively, the “Stock Options”) and the
Company has no Company stock option or other equity or incentive plan. Section
2.3 of the Company Disclosure Schedule sets forth a true and complete list of
all shareholders of the Company, and the number of shares held by each. There
are no options, warrants or other similar rights, agreements, arrangements,
commitments or understanding, whether or not in writing, of any character
relating to the issued or unissued capital stock or other securities of the
Company or obligating the Company to issue (whether upon conversion, exchange or
otherwise) or sell any share of capital stock of, or other equity interests in
or other securities of, the Company. There are no obligations, contingent or
otherwise, of the Company to repurchase, redeem or otherwise acquire any shares
of Common Stock or capital stock or any other securities of the Company or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity. Except as set forth on Section
2.3 of the Company Disclosure Schedule, there are no voting trusts or
agreements, stockholder agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any securities
of the Company.

 

 

 

 12 

 

 

Section 2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement by the Company, the
Transaction Documents and the consummation by the Company of the Contemplated
Transactions have been duly and validly authorized by all necessary corporate
action on the part of the Company, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement, the Transaction
Documents or to consummate the Contemplated Transactions, including, if
necessary, the approval of this Agreement by all Shareholders in accordance with
the Governing Corporate Law and the Company’s Certificate of Incorporation and
Bylaws, as amended to date. The Board has unanimously approved this Agreement
and the Contemplated Transactions and declared their advisability. This
Agreement has been duly and validly executed and delivered by the Company and,
when duly authorized, executed and delivered to all other parties hereto, will
constitute a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability
against the Company may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights and by general principles of
equity relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).

 

Section 2.5 Governmental Authorization and Consents. Except for obtaining those
consents, approvals, authorizations, filings or notices set forth in Section 2.5
of the Company Disclosure Schedule, no Governmental Authorization of, filing
with, or notice to, any Governmental Authority or any lenders, lessors,
creditors, shareholders or any other Person, is required by the Company in
connection with the execution, delivery and performance by the Company of this
Agreement or any document, agreement, instrument or certificate contemplated
hereby and the consummation by the Company of the Contemplated Transactions.
Additionally, no Governmental Authorization of, filing with, or notice to, any
Governmental Authority was required by the Company or, to the Company’s
Knowledge, the Hamner Institute in connection with (i) the Hamner Institute’s
contribution or assignment of Intellectual Property to the Company, or (ii) the
issuance of any equity securities of the Company to or from the Hamner
Institute.

 

 

 13 

 

 

Section 2.6 Non-contravention. The execution and delivery of this Agreement and
all of the Transaction Documents and, the performance by the Company of the
obligations hereunder and thereunder, and the consummation of the Transaction
and all related transactions, do not and will not (a) breach, contravene or
conflict with the Certificate of Incorporation, Bylaws or other charter
documents of the Company, (b) assuming compliance with the matters referred to
in Section 2.5, contravene or conflict with any applicable provision of any Law,
regulation, rule, judgment, injunction, Order or decree binding upon or
applicable to the Company, (c) except as set forth in Section 2.5 or Section 2.6
of the Company Disclosure Schedule, require notice, consent or approval or
constitute a default under, or impair or alter the rights of the Company or, to
the Company’s Knowledge, any third party, (d) give rise to a right of
termination, cancellation, amendment or acceleration of any right or obligation
of the Company or to a loss of any benefit to which the Company is entitled
under, any provision of any contract (including any Material Contract) or other
instrument binding upon the Company or by which any of the Company’s assets or
properties may be bound or subject, or any license, franchise, Permit or other
similar authorization held by the Company or (e) result in the creation or
imposition of any Lien on any assets or properties of the Company.

 

Section 2.7 Title to Properties; Absence of Liens; Sufficiency of Assets. The
Company has good, valid, and marketable title to or, in the case of leased
property and assets, valid and subsisting leasehold interests in, all of its
assets and property, whether real, personal, mixed, tangible, including, without
limitation, all of the assets and properties reflected in the Interim Balance
Sheet, free and clear of all Liens, except for such Liens as are set forth in
Section 2.7 of the Company Disclosure Schedule. The Company does not own or
lease any vehicles. As of the Closing, the assets and property owned or leased
by the Company (i) will constitute all of the property and assets used or held
for use in connection with the Company’s business, (ii) will constitute all of
the property and assets necessary to conduct the Company’s business, (iii) will
be in good operating condition and repair (normal wear and tear excepted),
(iv) will be adequate for the uses to which they are being put and (v) will be
free and clear of all Liens.

 

Section 2.8 Financial Statements; Related Information.

 

(a)       A correct and complete copy of the Audited Financial Statements,
together with the related auditor’s reports thereon, and Interim Balance Sheet
(collectively, the “Financial Statements”) are, or will be at the time of
Closing (with respect to the Audited Financial Statements) attached to Section
2.8(a) of the Company Disclosure Schedule. The Financial Statements were
prepared in accordance with GAAP applied on a consistent basis throughout all
periods involved, are accurate and complete and present fairly, the financial
position and the results of operations and cash flows of the Company, in each
case as of the dates and for the periods referred to therein, subject, in the
case of the Interim Balance Sheet, to (i) normally recurring year-end
adjustments in accordance with the Company’s ordinary course of business
consistent with past practices which are not material either individually or in
the aggregate and (ii) the absence of footnote disclosures.

 

 14 

 

 

(b)       The Company has not entered into any off balance sheet financial
arrangement, including any transaction involving a hedge or derivative financial
instrument.

 

(c)       The net property and equipment balance reflected in the Audited
Financial Statements and Interim Balance Sheet represents the sum of all
personal property and assets that are owned by the Company and not fully
depreciated, and any depreciation with respect to such assets has been made in
accordance with GAAP as historically applied by the Company on a consistent
basis.

 

(d)       The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations; (ii) revenue is
recognized in accordance with GAAP; and (iii) access to assets is permitted only
in accordance with management’s general or specific authorization.

 

Section 2.9 Absence of Certain Changes. Except as disclosed in Section 2.9 of
the Company Disclosure Schedule, since December 31, 2015, the Company has
conducted its business in the ordinary course consistent with past practice,
including making all payments and discharging all commitments and, except as
disclosed in Section 2.9 of the Company Disclosure Schedule, there has not been:

 

(a)       any event, occurrence, development of a state of circumstances or
facts, or change in the business, properties, assets, prospects, operations or
condition (financial or otherwise) of the Company which, individually or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect and no such event, occurrence, development or change is threatened;

 

(b)       (i) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or
(ii) any sale of issuance of, or any repurchase, redemption or other acquisition
by the Company of, any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company;

 

(c)       (i) any acquisition by the Company of stock or other equity interests,
from any Person, (ii) any acquisition of assets of another Person incident to
the acquisition of a business, (iii) any sale, lease, license or other
disposition of assets or property of the Company or (iv) any other acquisition
by the Company of assets of another Person;

 

(d)       any amendment of any term of any outstanding security of the Company;

 

(e)       any incurrence, assumption or guarantee by the Company of any
Indebtedness or any creation or assumption by the Company of any Lien on any
asset;

 

 

 

 

 15 

 

(f)       any extension of a loan, advance or capital contribution to or
investment in any Person by the Company;

 

(g)       any condemnation, seizure, damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the assets, properties,
business, prospects, operations or condition (financial or otherwise) of the
Company and, to the Company’s Knowledge, no such loss is threatened;

 

(h)       any material transaction or commitment made, or any material contract
or agreement entered into, amended or terminated by the Company or any waiver or
relinquishment by the Company of any contract or other right, other than in the
ordinary course of business consistent with past practices;

 

(i)       any change in any method of accounting or accounting practice by the
Company;

 

(j)       any capital expenditure, or commitment for a capital expenditure, for
additions or improvements to property, plant and equipment by the Company that,
individually or in the aggregate, involve payments in excess of $15,000;

 

(k)       except for capital expenditures and commitments referred to in
paragraph (j) above, any acquisition or disposition by the Company of any assets
or property (real, personal or mixed, tangible or intangible) in one or more
transactions, or any commitment by the Company in respect thereof, that,
individually or in the aggregate, involved or involve payments of $15,000 or
more;

 

(l)       any write-down or write-off of accounts receivable of the Company or
any cancellation of any debts or waiver of any Claims or rights, in each case,
other than in the ordinary course of business consistent with past practices;

 

(m)       any incurrence by the Company of any material liability or obligation
of any nature (whether accrued, absolute, contingent or otherwise);

 

(n)       any disposal by the Company or lapse of any rights to the use of any
Intellectual Property Rights, or disposal of or disclosure to any Person by the
Company other than representatives of Purchaser of any trade secret, formula,
process, know-how or other Intellectual Property Rights not theretofore a matter
of public knowledge;

 

(o)       any write-down by the Company of the value of any inventory (including
write-downs by reason of shrinkage or mark-down) or write-off by the Company as
uncollectible of any notes or accounts receivable, except for immaterial
write-downs and write-offs in the ordinary course of business and consistent
with past practice all of which are reflected in the Interim Balance Sheet;

 

(p)       any payment, discharge or satisfaction of any claim, liability or
obligation by the Company (whether absolute, accrued, contingent or otherwise)
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities and obligations
reflected or reserved against in the Balance Sheet or incurred in the ordinary
course of business and consistent with past practice since the Interim Balance
Sheet Date; or

 

 

 

 16 

 

 

(q)       any agreement by the Company, whether in writing or otherwise, to take
any action described in this Section 2.9.

 

Section 2.10 Related Party Transactions. Except as set forth in Section 2.10 of
the Company Disclosure Schedule, (a) no Shareholder, (b) no officer, director or
Affiliate of the Company, and (c) no immediate family member of any Person
identified in (a) or (b) above (collectively, the “Related Parties”) and no
former director or current employee: (i) owns, directly or indirectly, any
interest in (excepting not more than 5% stock holdings for investment purposes
in securities of publicly held and traded companies), or is an officer,
director, employee or consultant of, any Person which is, or is engaged in
business as, a competitor, lessor, lessee, customer, distributor, sales agent,
or supplier of the Company; (ii) owns, directly or indirectly, in whole or in
part, any tangible or intangible property that the Company uses or the use of
which is reasonably necessary or desirable for the conduct of the business of
the Company; (iii) owes any amount to the Company; or (iv) on behalf of the
Company, has made any payment or commitment to pay any commission, fee or other
amount to, or purchase or obtain or otherwise contract to purchase or obtain any
goods or services from, any Person of which any officer or director of the
Company, or an immediate family member of the foregoing, is a partner or
shareholder (excepting stock holdings solely for investment purposes in
securities of publicly held and traded companies). Section 2.10 of the Company
Disclosure Schedule contains a correct and complete description of all
transactions, contracts, agreements and understandings (oral or written) between
the Company and any Related Party (collectively, the “Related Party
Agreements”).

 

Section 2.11 Material Contracts.

 

(a)       Except as disclosed in the corresponding subsection of Section 2.11(a)
of the Company Disclosure Schedule, the Company is not a party to or bound by
any of the following (whether oral or written) (each a “Material Contract”):

 

(i)       any (A) lease, sublease, license or other agreement under which the
Company uses or has the right or obligation to use or pay rent or other fees for
use thereof, now or in the future, any real property (“Real Property Leases”) or
(B) lease for personal property;

 

(ii)       any partnership, joint venture or limited liability company
agreement;

 

(iii)       other than the Transaction Documents, any agreement relating to the
(A) acquisition or disposition of any business (whether by sale of stock, sale
of assets or otherwise) or (B) acquisition or disposition of assets outside the
ordinary course of business;

 

(iv)       any agreement relating to Indebtedness of the Company or Indebtedness
of any other Person to the Company;

 

(v)       any agreement that restricts the freedom of the Company to compete in
any line of business, in any market or customer segment or with any Person;

 

(vi)       any contract or other agreement with any current or former officer,
director, employee, consultant, agent or other representative or any agreement
or understanding pursuant to which the Company may be liable for any severance
or termination pay or obligations;

 

 

 

 

 17 

 

(vii)       any contracts or other agreements for the sale of any of its assets
or properties other than in the ordinary course of business or the grant to any
Person of any preferential rights to purchase any of the assets or properties of
the Company;

 

(viii)       any outstanding contracts or agreements with any Government Agency;

 

(ix)       any agreement for the purchase of more than $10,000 of materials,
software, supplies, goods, services, equipment or other assets, whether
individually or in the aggregate;

 

(x)       any agreement (A) providing for the sale by the Company of materials,
supplies, goods, services, equipment and involving more than $10,000, or (B)
which will result in any loss to the Company upon completion of performance
thereof, or any outstanding bids or proposals that will not result in a normal
profit;

 

(xi)       any option to license, license (including software licenses, other
than licenses for Off-the-Shelf Software with aggregate license fees of under
$5,000) or franchise agreement;

 

(xii)       any commission, agency, dealer, sales representative or marketing
agreement;

 

(xiii)       any agreement containing any right of first refusal or right of
first negotiation;

 

(xiv)       any agreement pursuant to which the Company is subject to
confidentiality or non-disclosure obligations;

 

(xv)       any agreement under which the Company agrees to indemnify any party
other than in the ordinary course of business, or in which the Company agrees to
indemnify any Person for consequential or incidental damages or lost profits;

 

(xvi)       any contract or agreement to provide goods or services to any Person
on a preferential or most-favored basis;

 

(xvii)       any agreement which encumbers any Company Intellectual Property
Rights other than agreements listed in (xi) above;

 

(xviii)       any outstanding proposal related to the Company’s business;

 

 

 

 18 

 

 

(xix)       any other agreement or series of related agreements, which,
individually or in the aggregate, is material to the Company; and

 

(xx)       the Consortium Agreements.

 

(b)       True and complete copies of all Material Contracts, in each case as
amended to date, have been made available to Purchaser on the Company Data Site.
Each Material Contract constitutes a valid and binding obligation of the Company
and is in full force and effect in all material respects. Each Material Contract
is enforceable against the Company, as applicable, and, to the Company’s
Knowledge, the other parties thereto in accordance with its terms, subject to
general equitable principles (regardless of whether such enforceability is
considered in a proceeding at equity or at Law), and except as enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application relating to creditors’
rights. The Company is not in default under or breach of any Material Contract,
and no event or circumstance has occurred that, with notice or lapse of time or
both, would (i) constitute any default or breach thereunder by the Company or,
to the Company’s Knowledge, any other party to such Material Contract,
(ii) impair or alter the rights of the Company or, to the Company’s Knowledge,
any third party, (iii) give rise to a right of termination, cancellation,
amendment or acceleration against the Company or (iv) result in the creation or
imposition of any Lien on any assets or properties of the Company.

 

(c)       Neither the Company, nor, to the Company’s Knowledge, any other Person
intends to terminate (whether for cause or convenience) or default under any
Material Contract before the expiration of its stated term, if any, and, to the
Company’s Knowledge, no Person intends not to renew such contract, if renewable
by its terms. Except as set forth in Section 2.11(c) of the Company Disclosure
Schedule, no Claim for non-performance of any Material Contract is pending or,
to the Company’s Knowledge, threatened. There are no pending renegotiations of,
attempts to renegotiate or outstanding rights to renegotiate any material
amounts paid or payable under any Material Contract, and no Person has requested
any such renegotiation. Except as separately identified in Section 2.5 of the
Company Disclosure Schedule, no approval or consent of any Person is needed in
order that the Material Contracts continue in full force and effect following
the consummation of the Transactions.

 

Section 2.12 No Undisclosed Liabilities. There are no liabilities of the Company
of the kind required to be disclosed on the face of a balance sheet in
accordance with GAAP (whether accrued or unaccrued, actual or contingent,
matured or unmatured, conditional or absolute, determined, determinable,
unliquidated or otherwise), and there are no existing conditions, situations or
circumstances which, individually or in the aggregate, reasonably could be
expected to result in such a liability or obligation, other than:
(a) liabilities or obligations to the extent disclosed or provided for in the
Interim Balance Sheet; (b) liabilities (other than an Indebtedness) that have
arisen after the Interim Balance Sheet Date in the ordinary course of business;
and (c) liabilities disclosed in Section 2.12 of the Company Disclosure
Schedule.

 

 

 

 19 

 

 

Section 2.13 Litigation. There is no action, suit, investigation or proceeding
pending against or, to the Company’s Knowledge, threatened against or affecting
the Company or any of its officers or directors in such capacity before any
court or arbitrator or any governmental body, agency or official nor is there
any valid basis for any such action, suit, investigation or proceeding. The
Company is not subject to any judgment, order or decree. The Company has not
instituted or had instituted on its behalf any legal proceeding against any
other Person.

 

Section 2.14 Compliance with Laws and Court Orders. The Company is in material
compliance with all applicable Laws, Orders or other requirements of each
Governmental Authority applicable to its business, properties, assets and
operations (including those Laws relating to wages and hours, classification of
employees, record keeping, customs, export and sanctions compliance, possession
of classified information or zoning). The Company has not been given written
notice of any alleged violation or non-compliance of any such Law, Order or
requirement. The Company is not and has not been under investigation with
respect to, and has not been given notice of any violation of any applicable
Law, order or requirement or, to the Company’s Knowledge, threatened to be
charged with any such violation of any applicable Law, order or requirement.

 

Section 2.15 Licenses and Permits. The Company has all Governmental
Authorizations, license, franchise, permit, Order, registration, certificate,
approval or other similar authorization issued to the Company affecting, or
relating in any way to, the assets or business of the Company (collectively, the
“Permits”) necessary to carry on its business as now conducted. Section 2.15 of
the Company Disclosure Schedule correctly sets forth a list of each Permit, and
each pending application for any Permit, together with the name of the
Government Agency or entity issuing such Permit or with which such application
is pending. Except as set forth in Section 2.15 of the Company Disclosure
Schedule, (a) the Permits are valid and in full force and effect, (b) the
Company has not been in violation of or default under, and no condition exists
that with notice or lapse of time or both would constitute a violation of or
default under, the Permits, (c) no proceeding is pending or, to the
Shareholders’ Knowledge, threatened, to revoke or limit any Permit and (d) none
of the Permits will be terminated or impaired or become terminable, in whole or
in part, as a result of the Contemplated Transactions. The Company is in
compliance in all material respects with the terms of such Permits.

 

Section 2.16 Governmental Contracts. The Company (i) is not a party to, nor is
the Company or any of its assets bound or affected by, any Government Contract,
and (ii) has not submitted any Government Contract Proposal.

 

Section 2.17 Proprietary Rights.

 

(a)       Company IP Rights. Section 2.17(a) of the Company Disclosure Schedule
sets forth a list of the all Intellectual Property Rights that are used in or
necessary to the operation of the Company or its business (the “Company IP
Rights”), including without limitation all: (i) patents and patent applications,
along with, for any and all of the foregoing, any and all inventions described
in the patents or patent applications, in the United States, its territorial
possessions and all foreign countries, and in any and all continuations-in-part,
continuations, divisions, substitutes, reissues, extensions thereof, together
with all Claims for damages or injunctive relief by reason of infringements of
any patents issuing from such patent applications, with the right to sue for
past infringement and collect for same; (ii) trademarks and applications
therefor; (iii) copyrights and applications therefor; (iv) Internet domain
names, (v) Licensed Intellectual Property, excluding Off-the-Shelf Software
having aggregate perpetual license fees of under $5,000; (vi) trade secrets and
know-how; and (vii) software (in both object code and source code form),
specifications, drawings, and other technical documentation related to the
Company business.

 

 

 

 20 

 

 

(b)       Ownership. Subject to Section 2.17(b) of the Company Disclosure
Schedule, the Company is the sole and exclusive owner of the right, title and
interest in and to all Company IP Rights (with the exception of the Licensed
Intellectual Property) (the “Owned Intellectual Property”). All patents,
registrations and applications for Owned Intellectual Property (i) are valid,
subsisting and in proper form, and have been duly maintained, including the
timely submission of all necessary filings, fees and Taxes in accordance with
the legal and administrative requirements of the appropriate jurisdictions and
(ii) have not lapsed, expired or been abandoned, and no patent, registration or
application therefor is the subject of any opposition, interference,
cancellation proceeding or other legal or governmental proceeding before any
Governmental Authority in any jurisdiction.

 

(c)       Licenses to Company. The Licensed Intellectual Property is licensed
pursuant to valid and binding agreements that are enforceable by the Company in
accordance with their terms and, other than as set forth in Section 2.17(c) of
the Company Disclosure Schedule, in connection with the Contemplated
Transactions, are not deemed to be assigned or otherwise are freely assignable
under such agreements without consent or approval of any third party. The
Company, and, to the Company’s Knowledge, any other party to any such agreement
is not in default or breach in any material respect under the terms of any such
agreements and no event or circumstance has occurred that, with notice or lapse
of time or both, would constitute a material breach or default thereunder. The
computer software used by the Company in the conduct of its business was either
(i) developed by employees of the Company within the scope of their employment,
(ii) developed on behalf of the Company by a third party, and in each case all
ownership rights therein have been assigned or otherwise transferred to or
vested in the Company pursuant to written agreements, (iii) licensed or acquired
from a third party pursuant to a written license, assignment, or other contract
that is in full force and effect and of which the Company is not in material
breach or (iv) open source software.

 

(d)       Licenses from Company to Third Parties. Except as set forth in Section
2.17(d) of the Company Disclosure Schedule, the Company has not has granted any
licenses to another Person with respect to the Owned Intellectual Property. The
Company has not granted any Person an exclusive license under any Owned
Intellectual Property. Except as set forth in Section 2.17(d) of the Company
Disclosure Schedule, the Company has not entered into any consent,
indemnification, forbearance to sue, settlement agreement or cross-licensing
arrangement with any Person relating to any Intellectual Property Rights.

 

(e)       Government Rights. Except as disclosed in Section 2.17(e) of the
Company Disclosure Schedule, the Company has not provided to the U.S. Government
any ownership rights in the Owned Intellectual Property. Except as disclosed in
Section 2.17(e) of the Company Disclosure Schedule, the Company has not provided
to the U.S. Government greater intellectual property rights to use third-party
materials than have been granted to the Company.

 

 

 

 21 

 

 

(f)       Adverse Effect. The Contemplated Transactions will not result in any
termination, loss or impairment of any Company IP Right nor require payment by
the Company of any fee to owners of any Licensed Intellectual Property.

 

(g)       Encumbrances. The Company has not assigned, hypothecated or otherwise
encumbered title in and to any of the Owned Intellectual Property and other than
as disclosed on Section 2.17(g) of the Company Disclosure Schedule, is not
obligated to pay any further sums to another Person for the use of the Licensed
Intellectual Property or Owned Intellectual Property equal to or greater than
$10,000 in the aggregate. The Company has no agreement or obligation to pay any
employee or consultant any sums for the use by the Company of any Intellectual
Property Rights. The Owned Intellectual Property was written and created solely
by either (i) current and former employees of the Company acting within the
scope of their employment who have validly and irrevocably assigned all of their
rights, including all Intellectual Property Rights therein, to the Company
pursuant to the agreements set forth in Section 2.17(g) of the Company
Disclosure Schedule or (ii) by third parties who have validly and irrevocably
assigned all of their rights in and to the Owned Intellectual Property,
including all Intellectual Property rights therein, to the Company.

 

(h)       Infringement. Except as disclosed in Section 2.17(h)(1) of the Company
Disclosure Schedule, (i) to the Company’s Knowledge, there are no infringements
by any other party of any of the Owned Intellectual Property, (ii) there are no
pending or, to the Company’s Knowledge, threatened Claims against any Person,
who would be entitled to indemnification by the Company for such Claims, that
the Owned Intellectual Property infringes any other Person’s Intellectual
Property, (iii) making, using or selling the Company’s products and/or services,
as currently designed, does not infringe any third party’s Intellectual Property
Rights in existence as of the Closing and (iv) except as disclosed in Section
2.17(h) of the Company Disclosure Schedule, there are no facts, conditions,
situations or set of circumstances that would reasonably be expected to result
in or be the basis for any such liability in the future. Except as disclosed in
Section 2.17(h)(2) of the Company Disclosure Schedule, the Company has not
entered into any agreement to indemnify any Person against any charge of
infringement of any of the Company’s Intellectual Property, and neither the
Company nor to the Company’s Knowledge, such other Person has received any
written communication alleging that the Company or such Other Person, by making,
using or selling the Company’s Intellectual Property, has violated or infringed
the Intellectual Property of any other Person. The Company has not been sued at
any time for infringing any Intellectual Property of another Person.

 

(i)       Know-How. Except as disclosed in Section 2.17(i) of the Company
Disclosure Schedule, there have been no disclosures by the Company or any of
their Affiliates, to any other Person, other than disclosures to Government
Agencies or Persons who are bound to hold such information in confidence
pursuant to confidentiality agreements or otherwise by operation of Law, of any
algorithm, process, technique, formula, research and development results,
financial results, price or cost data or other know-how relating to the business
of the Company, the unauthorized public disclosure or use of which could have
individually or, in the aggregate, a Material Adverse Effect on the Company.
Except as disclosed in Section 2.17(i) of the Company Disclosure Schedule, to
the Company’s Knowledge, no employee or former employee has used any algorithm,
process, technique, formula, research and development results, financial
results, price or cost data or other know-how constituting Intellectual Property
of the Company for any purpose other than for the benefit of the Company.

 

 

 

 22 

 

 

(j)       Open Source Software. The Intellectual Property Rights used by the
Company do not include any open source software.

 

Section 2.18 Taxes.

 

(a)       Except as otherwise set forth on Section 2.18(a) of the Company
Disclosure Schedule: (i) the Company has timely filed (taking into account any
properly granted extensions of time to file) all Tax Returns with the
appropriate taxing authorities required to have been filed, and each such Tax
Return is correct and complete in all material respects; (ii) all material Taxes
due and owed by the Company, whether or not shown on any Tax Return, have been
timely paid; (iii)  the Company and its officers, directors or employees
responsible for Tax matters have complied with all rules and regulations
relating to the withholding of Taxes and the remittance of withheld Taxes in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party; (iv) the Company has not
waived any statute of limitations in respect of its Taxes or agreed to any
extension of time with respect to a Tax assessment of deficiency, which waiver
or extension is currently in effect; (v) no withholding is required under
Section 1445 of the Code, in connection with the consummation of the
Contemplated Transactions; (vi) the Company has not engaged in any transaction
that would constitute a “reportable transaction,” a transaction substantially
similar to a “reportable transaction,” or a “tax shelter” within the meaning of
Sections 6011, 6111, 6662 or 6707A of the Code and the Treasury Regulations
thereunder, and that has not been disclosed on an applicable Tax Return;
(vii) the Company has no outstanding ruling requests to the Internal Revenue
Service or a state tax authority; (viii) the Company has at no time made,
changed or rescinded any express or deemed material election relating to Taxes
that is not reflected in any Tax Return; (ix) the Company will not be required
to include any item of income in, or exclude any item of deduction from any Tax
period ending after the Closing Date as a result of any (a) change in method of
accounting for a taxable period (or portion thereof) ending on or prior to the
Closing Date (including installment sale or open transaction), (b) ”closing
agreement” as described in Section 7121 of the Code or similar state or local
Tax Law, or (c) material prepaid amount received on or prior to the Closing
Date; (x) the Company has not been a member of an Affiliate group of
corporations within the meaning of Section 1504(a) of the Code that has filed or
at any time was required to file a consolidated federal income tax return for
any taxable period, and the Company has not been a member of an Affiliate group
of corporations that has filed or at any time was required to file a
consolidated, combined or unitary income tax return under provisions of state,
local or foreign tax Law comparable to Section 1504(a) of the Code for any
taxable period; (xi) the Company has no obligation under any agreement or
arrangement with any other Person with respect to which it has agreed to accept
liability for Taxes of such other Person (including pursuant to Treasury
Regulations Section 1.1502-6 or comparable provision of state, local or foreign
tax Law), including any liability for Taxes as a transferee or successor, by
contract or otherwise; (xii) the unpaid Taxes of the Company do not exceed the
reserve for Tax liability (excluding any reserve for deferred Taxes established
to reflect temporary difference between book and Tax income) set forth or
included in the Interim Balance Sheet; (xiii) no payments by the Company to
employees required under or contemplated by this Agreement will be
non-deductible under Sections 162(a), 162(m) or 280(G) or other similar
provisions of the Code concerning non-deductibility of expenses; (xiv) the
Company is not the beneficiary of any extension of time within which to file any
Tax Returns; (xv) there are no liens for Taxes (other than Taxes not yet due and
payable) upon any of the assets of the Company; (xvi) the Company has not
received any written notice from any Tax authority that such Tax authority
currently plans to assess any additional Taxes for any period for which Tax
Returns have been filed; (xvii) no Tax audits or administrative or judicial Tax
proceedings are pending or being conducted with respect to the Company;
(xviii) the Company has not received from any taxing authority (including
jurisdictions in which the Company has not filed Tax Returns) any currently
unresolved (A) written notice indicating an intent to open an audit or other
review, (B) written request for information related to Tax matters or
(C) written notice of deficiency or proposed adjustment for any amount of Tax,
proposed, asserted or assessed by any taxing authority against the Company;
(xix) the Company has not distributed stock of another Person or had its stock
distributed by another Person in a transaction that was purported or intended to
be governed in whole or in party by Sections 354, 355 or 361 of the Code;
(xx) at no time has a nonresident alien (as defined in Section 7701(b)(1)(B) of
the Code) been a shareholder of the Company; (xxi) no liability can be imposed
on the Company under Section 4979A of the Code; and (xxii) the Company has not
been requested to or participated in an “International Boycott” within the
meaning of Section 999 of the Code.

 

 

 

 23 

 

 

(b)       Tax Returns. The Company has made available to Purchaser on the
Company Data Site (i) complete copies of all Tax Returns of the Company
requested by Purchaser, and of all examination reports and statements of
deficiencies assessed against or agreed to by the Company for all taxable
periods for which the applicable statute of limitations has not yet expired, and
(ii) complete copies of all private letter rulings, revenue agent reports,
information documents requests, notices of proposed deficiencies, deficiency
notices, protests, petitions, closing agreements, settlement agreements, pending
ruling requests, and any similar documents, submitted by, received by, agreed to
by or on behalf of or otherwise relating to the Company with respect to a
taxable period for which the statute of limitations has not yet expired. Section
2.18(b) of the Company Disclosure Schedule lists each state, local, county,
municipal or foreign jurisdiction in which the Company files or is or has been
determined by any Governmental Agency to be required to file a Tax Return or is
or has been determined by any Governmental Agency to be liable for any Tax on a
“nexus” basis at any time for a taxable period for which the statute of
limitations has not expired.

 

(c)       Partnerships. The Company does not own and has not owned an interest
in any Person treated as a partnership for Tax purposes.

 

Section 2.19 Real Property. The Company has never owned any real property or
interest therein. Section 2.11(a)(i) of the Company Disclosure Schedule sets
forth a true and complete list of all Real Property Leases and other than the
property under the Real Property Leases, the Company has never leased any other
real property or interest therein. No third-party claim has been made against
the Company or against the landlord under any Real Property Lease based on an
event or circumstance occurring on the leased real property or relating to use
and occupancy by the Company of the leased real property.

 

 

 

 

 24 

 

Section 2.20 Environmental Matters.

 

(a)       Except as identified in Section 2.20(a) of the Company Disclosure
Schedule:

 

(i)       no notice, notification, demand, request for information, citation,
summons or order has been received, no penalty has been assessed, and no
investigation, action, Claim or review (or any basis therefor) is pending or, to
the Company’s Knowledge, is threatened by any Governmental Authority or other
Person with respect to any matters relating to the Company or any Person for
which the Company has retained or assumed liability either contractually or by
operation of Law, and relating to or arising out of any Environmental Law;

 

(ii)       no complaint has been filed with respect to any matters relating to
the Company and relating to or arising out of any Environmental Law;

 

(iii)       there are no liabilities of or relating to the Company, of any kind
whatsoever whether accrued, contingent, absolute, determined or otherwise,
arising under or relating to any Environmental Law, and to the Company’s
Knowledge there are no facts, conditions, situations or set of circumstances
that would reasonably be expected to result in or be the basis for any such
liability;

 

(iv)       the Company is and has been in compliance with all Environmental Laws
in all material respects, and has obtained and is in compliance with all
Environmental Permits in all material respects; and

 

(v)       the Company has never performed or subcontracted for the performance
of, at its own facilities or otherwise, any activity involving the disturbance,
abatement, repair or removal of any Material of Environmental Concern.

 

(b)       The Company has not used or disposed of any Materials of Environmental
Concern.

 

(c)       The Company is not subject to any Environmental Laws requiring (i) the
performance of site assessment by the Company for Materials of Environmental
Concern, (ii) the removal or remediation by the Company of Materials of
Environmental Concern, (iii) the giving of notice to, or receiving the approval
of, any Governmental Authority by the Company, or (iv) the recording or delivery
by the Company to any other Person of any disclosure document or statement
pertaining to matters of environmental concern by virtue of the Transactions or
as a condition to the effectiveness of any of the Transactions.

 

(d)       There has been no environmental investigation, study, audit, test,
review or other analysis conducted in relation to the current or prior business
of the Company or any property or facility now or previously owned, leased or
operated by the Company which has not been made available to Purchaser on the
Company Data Site at least fifteen (15) days prior to the date of this
Agreement.

 

 

 

 

 25 

 

For purposes of this Section 2.20, the following terms shall have the meanings
set forth below:

 

“Company” shall include the Company and any entity which is, in whole or in
part, a predecessor of the Company.

 

“Environmental Laws” means any Law (including common law), treaty, judicial
decision, regulation, rule, judgment, order, decree, injunction, permit or
governmental restriction or requirement or any agreement or contract with any
Governmental Authority or other third party, whether now or hereinafter in
effect, relating to human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or any toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or materials.

 

“Environmental Permits” means all permits, licenses, franchises, certificates,
approvals and other similar authorizations of Governmental Authorities relating
to or required by Environmental Laws and affecting the business of the Company
as currently conducted.

 

“Materials of Environmental Concern” shall mean chemicals, pollutants,
contaminants, toxic or hazardous substances, petroleum and petroleum products,
asbestos and asbestos-containing materials, polychlorinated biphenyls, lead and
lead-based paints and materials, and radon.

 

Section 2.21 Insurance Coverage. Section 2.21 of the Company Disclosure Schedule
sets forth (a) a true and complete list and description of all insurance
policies, fidelity bonds and other insurance arrangements and other contracts or
arrangements for the transfer or sharing of insurance risks by the Company with
respect to the business, assets, properties, operations, employees, officers or
directors of the Company (the “Company Policies”), together with a statement of
the aggregate amount of Claims paid out, and Claims pending, under each such
insurance policy or other arrangement through the date hereof, (b) the dates
from which such policies or other arrangements have been in effect, and (c) a
description of such risks that the Company has designated as being self-insured.
True and complete copies of all such Company Policies have been made available
to Purchaser on the Company Data Site. The Company has policies of insurance of
the type and, to the Company’s Knowledge, in amounts customarily carried by
Persons conducting businesses or owning assets similar to those of the Company.
All such Company Policies are in full force and effect, all premiums due thereon
have been timely paid, and the Company is otherwise in compliance in all
material respects with the terms and provisions of such policies and
arrangements. Furthermore, (i) the Company has not received any notice of
cancellation or non-renewal of any such policy or arrangement, nor is the
termination of any Company Policy or arrangements threatened, (ii) there is no
claim pending under any of such policies or arrangements as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
arrangements or in respect of which the underwriters have reserved their rights,
(iii) the Company has not received any notice or indication from any of its
insurance carriers that any insurance premiums will be increased in the future
or that any insurance coverage presently provided for will not be available to
the Company in the future on substantially the same terms as now in effect and
(iv) none of such Company Policies provide for any retrospective premium
adjustment, experienced-based liability or loss sharing arrangement affecting
the Company.

 

 

 

 

 26 

 

Section 2.22 Employee Benefit Plans.

 

(a)       Section 2.22(a) of the Company Disclosure Schedule contains a correct
and complete list identifying (i) each “employee benefit plan”, as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”),
and (ii) each employment, severance or similar contract, plan, arrangement or
policy and each other plan, agreement or arrangement (written or oral) providing
for compensation, bonuses, profit-sharing, stock option or other stock-related
rights or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers’ compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance benefits)
which is maintained, administered, contributed to or required to be contributed
to by the Company or any ERISA Affiliate and covers any employee or former
employee of the Company, or with respect to which the Company or any ERISA
Affiliate has any liability, whether direct or indirect, actual or contingent,
and whether formal or informal (collectively, the “Employee Plans”). Copies of
each such plan (and, if applicable, any related trust agreement and all
amendments to such requested plans), together with the most recent annual report
(Form 5500 including, if applicable, Schedule B thereto) prepared in connection
with any such plan, have been furnished to Purchaser. For purposes of this
Section 2.22, “ERISA Affiliate” of any Person means any other Person that,
together with such Person, would be treated as a single employer under Section
414 of the Code or Section 4001 of ERISA.

 

(b)       Neither the Company nor any ERISA Affiliate maintains, or has ever
maintained, any Employee Plan that (i) constitutes or constituted a
“multiemployer plan,” as defined in Section 3(37) of ERISA, (ii) is or was
subject to Title IV of ERISA, (iii) is or was intended to be qualified under
Section 401(a) of the Code or any trust forming a part thereof; (iv) is or was a
“nonqualified deferred compensation plan” (within the meaning of Section 409A of
the Code). Neither the Company nor any ERISA Affiliate is a party to, or
otherwise obligated under, any contract, agreement, plan or arrangement that
provides for the gross-up of interest and/or taxes imposed by Section
409A(a)(1)(B) of the Code.

 

(c)       Each Employee Plan has been maintained in compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations, including ERISA and the Code, which are applicable to such Employee
Plan, including timely adoption of all amendments required to maintain each such
Employee Plan’s compliance with applicable Law. All contributions and payments
accrued under each Employee Plan have been discharged and paid on or prior to
the Closing Date, other than with respect to any accrued during the payroll
period which includes the Closing Date.

 

 

 

 

 27 

 

(d)       Except as set forth in Section 2.22(d) of the Company Disclosure
Schedule, neither the execution of this Agreement or any other Transaction
Documents, nor the consummation of the Contemplated Transactions will
(i) entitle any employee or independent contractor of the Company to severance
pay or any increase in severance pay upon any termination of employment after
the date of this Agreement or (ii) accelerate the time of payment or vesting or
result in any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable, or result in any
other material obligation pursuant to, any Employee Plan. The Company does not
have any liability with respect to post employment or retiree health, medical or
life insurance benefits for retired, former or current employees of the Company.

 

(e)       There is no pending or, to the Company’s Knowledge, threatened or
contingent Claim against the Company relating to any Employee Plans. No Employee
Plan or fiduciary thereof is under review or investigation by any Government
Agency or Governmental Authority. No fiduciary of any Employee Plan has breached
any fiduciary duty it owes to such Employee Plan or any of its participants.

 

Section 2.23 Employees.

 

(a)       Set forth in Section 2.23 of the Company Disclosure Schedule is a true
and complete list as of the date of this Agreement of (i) the names and titles
of all employees, directors and officers of the Company and (ii) the names of
all independent contractors or consultants. Except as set forth in Section 2.23
of the Company Disclosure Schedule, the Company has not entered into an
employment agreement, oral or written, with any Person and all employees are “at
will” and will not be owed any severance, termination or other special payments
or benefits upon termination of employment. Set forth in Section 2.23 of the
Company Disclosure Schedule is a list of the names of Persons with whom the
Company has entered into a separation agreement and general release or similar
agreements within the last seven (7) years.

 

(b)       The Company has engaged CBIZ- Flex-Pay (“Payroll Company”) to
facilitate employment tax administration and payroll processing. Notwithstanding
the foregoing, all personnel of the Company processed through Payroll Company
are employees of the Company, and all references in this Agreement to Company
employees, and/or Persons employed by the Company, shall include personnel
processed by Payroll Company on behalf of the Company.

 

Section 2.24 Labor Matters. The Company is in material compliance with all Laws
respecting terms and conditions of employment and employment practices, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health and plant closing. Each Person employed by the
Company who was or is classified by the Company as exempt from overtime
requirements under applicable Law was and is properly classified as exempt, and
no such Person has any Claim against the Company for wages or benefits relating
to being classified as exempt under applicable Law. There exists no basis for
the assessment of any unpaid wages with respect to any employees of the Company.
All Persons treated as independent contractors or consultants by the Company are
not employees under applicable Law, and no such Person has any Claim against the
Company for wages or benefits relating to being classified as an independent
contractor under applicable Law. There is no unfair labor practice complaint
pending or, to the Company’s Knowledge, threatened against the Company before
the National Labor Relations Board or any state or local authority or agency.
The Company is not and has not been bound by or party to any collective
bargaining agreement. There is no labor strike, slowdown, lockout or stoppage or
union organization campaign, election or similar action pending or, to the
Company’s Knowledge, threatened against or affecting the Company. The Company
has not incurred any liability or obligation under the Worker Adjustment and
Retraining Notification Act, as it may be amended from time to time, or similar
applicable state Law. The Company has never employed any illegal aliens and has
complied with all immigration laws. To the Company’s Knowledge, no employee of
the Company has (a) breached any agreement to keep in confidence information
acquired by that employee in confidence or in trust prior to that employee’s
employment with the Company by disclosing such information to the Company, or
(b) through his or her employment by the Company, breached any noncompetition,
nonsolicitation or noninterference agreement or used trade secrets of any other
Person. During the past three (3) years, no significant accidents or injuries
have occurred in the workplace or in work-related activities involving the
Company or any of its employees, officers, consultants, directors or
contractors.

 

 

 

 

 28 

 

Section 2.25 Books and Records. The Company has maintained business records,
including books of account, minute books and stock record books, with respect to
the assets and its business and operations which are true, accurate and complete
in all material respects, and there are no material deficiencies in such
business records. True and complete copies of all minute books and all stock
record books of the Company have heretofore been made available to Purchaser on
the Company Data Site. None of the records, systems, controls, data or
information which are material to the operation of the Company’s business are
recorded, stored, maintained, operated or otherwise wholly or partly dependent
upon or held by any means (including any electronic, mechanical or photographic
process, whether or not computerized) which (including all means of access
thereto and therefrom) are not under the exclusive ownership and direct Control
of the Company.

 

Section 2.26 Customers; Suppliers. Since January 1, 2016, there has not been
(a) any adverse change in the business relationship of the Company with any
customer or supplier of the Company’s business or (b) any adverse change in any
material term (including payment terms) of the customer or supplier agreements
or related agreements with any such customer or supplier. To the Company’s
Knowledge, no customer or supplier of the Company’s business intends to cease
doing business with the Company or materially decrease the amount of business it
does with the Company.

 

Section 2.27 Customer or Third-Party Approval. All work substantially completed
by the Company prior to the Closing Date which will require either customer or
third-party approval or acceptance but which has not yet received the required
customer or third-party approval or acceptance will meet all material
requirements and specifications of the applicable contract as modified through
the Closing Date in all material respects.

 

 

 

 

 29 

 

Section 2.28 Absence of Unlawful Payments. The Company (including any of its
officers, directors, agents, distributors, employees or other Person associated
with or acting on its behalf) has not, directly or indirectly, taken any action
which would cause it to be in violation of the Foreign Corrupt Practices Act of
1977, as amended, or any rules or regulations thereunder or any similar
anti-corruption or anti-bribery Laws applicable to the Company in any
jurisdiction other than the United States (in each case, as in effect at the
time of such action) (collectively, the “FCPA”) or used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, made, offered or authorized any unlawful payment to
foreign or domestic government officials or employees, whether directly or
indirectly, or made, offered or authorized any unlawful bribe, rebate, payoff,
influence payment, kickback or other similar unlawful payment, whether directly
or indirectly, except for any of the foregoing which is no longer subject to
potential claims of violation as a result of the expiration of the applicable
statute of limitations. The Company has established reasonable internal controls
and procedures intended to ensure compliance with the FCPA.

 

Section 2.29 International Trade. The Company has not unlawfully exported,
disclosed, released or otherwise provided access to information, software,
technical data or technical assistance that is Controlled for export under, and
has at all times been in compliance with, the International Traffic in Arms
Regulations (ITAR), Export Administration Regulations (EAR) and/or other
applicable export or sanction Law.

 

Section 2.30 Service or Product Liability. There is no action or suit,
proceeding, or to the Company’s Knowledge, inquiry or investigation, by or
before any court or Governmental Authority pending or, to the Company’s
Knowledge, threatened against or involving the Company relating to any services
performed by the Company that are alleged to have been defective or improperly
rendered or not in compliance with contractual requirements or relating to any
products or software manufactured, sold, leased, licensed or delivered by the
Company which are alleged to be defective or not in compliance with contractual
requirements; nor, to the Company’s Knowledge, is there any basis for or any
event or circumstances that might give rise to any such action, suit or
proceeding, inquiry or investigation, Claim or notice. The Company has no
liability (and to the Company’s Knowledge, there is no basis for any present or
future action, suit, proceeding, inquiry, investigation, charge, complaint,
Claim, notice or demand against it giving rise to any liability) arising out of
injury to individuals or property as a result of the ownership, possession, or
use of any services, products or software designed, manufactured, sold, leased,
licensed or delivered by the Company.

 

Section 2.31 Finders’ Fees. No broker, finder, agent or similar intermediary has
acted on behalf of the Company or the Shareholders in connection with this
Agreement or the Contemplated Transactions, and there are no brokerage
commissions, finders’ fees or similar fees or commissions payable by the Company
in connection therewith based on any agreement, arrangement or understanding
with the Company or the Shareholders.

 

Section 2.32 Bank Accounts and Powers of Attorney. Set forth in Section 2.32 of
the Company Disclosure Schedule is an accurate and complete list showing (a) the
name and address of each bank or other depository with which the Company has an
account and/or safe deposit box, the number of any such account or any such box
and the names of all Persons authorized to draw thereon or to have access
thereto, and (b) the names of all Persons, if any, holding powers of attorney
from the Company and a summary statement of the terms thereto.

 

 

 

 

 30 

 

Section 2.33 Consortium Agreement. True and complete copies of all Consortium
Agreements, in each case as amended to date, have been made available to
Purchaser on the Company Data Site. Each Consortium Agreement constitutes a
valid and binding obligation of the Company and is in full force and effect in
all material respects. Each Consortium Agreement is enforceable against the
Company, as applicable, and, to the Company’s Knowledge, the other parties
thereto in accordance with its terms, subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding at
equity or at Law), and except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general application relating to creditors’ rights. The Company is not in
default under or breach of any Consortium Agreement, and no event or
circumstance has occurred that, with notice or lapse of time or both, would (i)
constitute any default or breach thereunder, (ii) impair or alter the rights of
the Company or any third party, (iii) give rise to a right of termination,
cancellation, amendment or acceleration, or (iv) result in the creation or
imposition of any Lien on any assets or properties of the Company. Neither the
Company, nor, to the Company’s Knowledge, any other Person intends to terminate
(whether for cause or convenience) or default under any Consortium Agreement
before the expiration of its stated term, if any, and, no Person intends not to
renew such contract, if renewable by its terms. Except as set forth in Section
2.33 of the Company Disclosure Schedule, no Claim for non-performance of any
Consortium Agreement is pending or, to the Company’s Knowledge, threatened.
There are no pending renegotiations of, attempts to renegotiate or outstanding
rights to renegotiate any material amounts paid or payable under any Consortium
Agreement, and no Person has requested any such renegotiation. Except as
separately identified in Section 2.5 of the Company Disclosure Schedule, no
approval or consent of any Person is needed in order that the Consortium
Agreements continue in full force and effect following the consummation of the
Transactions.

 

Section 2.34 Full Disclosure. No representation, warranty or other statement of
the Company or the Shareholders contained in this Agreement contains an untrue
statement of material fact or omits to state a material fact necessary in order
to make such representation, warranty or other statement, in light of the
circumstances under which it was made, not misleading. Neither the Company nor
any of the Shareholders has withheld from Purchaser any documents or other
information in its possession that, taken as a whole with all other documents
and information in the Company’s or the Shareholders’ possession, (i) would lead
a reasonable Person in Purchaser’s position to conclude that any such
representation, warranty or other statement is untrue in any material respect,
or (ii) would be material to the decision of a reasonable Person in Purchaser’s
position to execute this Agreement and consummate the Transaction. The Company
or the Shareholders have made available on the Company Data Site true, correct
and complete copies of the Certificate of Incorporation, Bylaws, and all other
material organizational and constituent documents and minute books of the
Company (including stock ledger) and all Material Contracts, Financial
Statements, Tax Returns and insurance policies referred to in this Agreement.

 

 

 

 31 

 

 

ARTICLE IIA.
REPRESENTATIONS AND WARRANTIES OF
COMPANY SHAREHOLDERS

 

Each Shareholder, severally and not jointly, represents and warrants to
Purchaser as of the date of this Agreement and as of the Closing Date as
follows:

 

Section 2A.1  Valid Title. Such Shareholder is the sole, true, and lawful owner
of the type and number of shares of Company Common Stock in the amount set forth
in Section 2.3 of the Company Disclosure Schedule, free and clear of any and all
Claims, Liens, and any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such shares).
Except as set forth on Section 2.3 of the Company Disclosure Schedule, such
Shareholder owns no securities of the Company or options to purchase or rights
to subscribe for or otherwise acquire any securities of the Company and has no
other interest in or voting rights with respect to any securities of the
Company. Except as set forth on Section 2.3 of the Company Disclosure Schedule,
none of such Shareholder's shares of Company Common Stock is subject to any
voting trust or other agreement or arrangement with respect to the voting of
such stock.

 

Sectioin 2A.2  Authorization; Binding Effect. Such Shareholder has the legal
capacity to enter into this Agreement and the Transaction Documents contemplated
hereby to which such Shareholder is a party and to consummate the Contemplated
Transactions and thereby. This Agreement, the Transaction Documents and each
such document to which such Shareholder is or will be a party have been (and as
to those yet to be executed, will be) duly executed and delivered by such
Shareholder and, when duly authorized, executed and delivered all other parties
thereto, will constitute a valid and binding agreement of such Shareholder
enforceable against such Shareholder in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforcement of creditors’ rights
generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at Law).

 

Section 2A.3  Governmental Authorization and Consents. No Governmental
Authorization of, filing with, or notice to, any Governmental Authority or any
lenders, lessors, creditors, stockholders or any other Person, is required by
such Shareholder in connection with the execution, delivery and performance by
such Shareholder of this Agreement and each of the documents, agreements,
instruments and certificates to which such Shareholder is a party in connection
with the Contemplated Transactions, and the consummation by such Shareholder of
the transactions contemplated hereunder and thereunder.

 

Section 2A.4  Non-contravention. The execution and delivery of this Agreement,
and each of the documents, agreements, instruments and certificates to which
such Shareholder is a party, by such Shareholder, the performance by such
Shareholder of his or her respective obligations hereunder and thereunder, and
the consummation of the Contemplated Transactions, do not and will not
(a) contravene or conflict with any applicable provision of any Law, regulation,
rule, judgment, injunction, Order or decree binding upon or applicable to the
Shareholder, or (b) contravene or constitute a default under any written
agreement or obligation to which such Shareholder is a party by which any of his
or her properties or assets are bound.

 

 

 

 32 

 

 

Article III
REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants to the Company and the Shareholders as of the
date of this Agreement as follows:

 

Section 3.1 Corporate Existence and Power. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted and to own the properties and assets
it now owns.

 

Section 3.2 Corporate Authorization; Binding Effect. Purchaser has all requisite
corporate power and corporate authority required to enter into this Agreement
and all documents, agreements, instruments and certificates contemplated hereby
to which it is or will be a party and to consummate the Contemplated
Transactions to be consummated by it. The execution and delivery of such
documents to which each of Purchaser is or will be a party by Purchaser, and the
consummation of the transactions to be consummated by Purchaser hereunder, have
been duly authorized by all necessary corporate action on the part of Purchaser.
This Agreement and the Transaction Documents to which each is a party have
and/or will be duly executed and delivered by Purchaser, and, when duly
authorized, executed and delivered all other parties thereto, such agreements
will constitute a valid and binding agreement of such Purchaser enforceable
against Purchaser in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors’ rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at Law).

 

Section 3.3 Governmental Authorization. No Governmental Authorization of, filing
with, or notice to, any Governmental Authority or any other Person is required
by Purchaser in connection with the execution, delivery and performance by
Purchaser of this Agreement or any document to which it is a party in connection
herewith and the consummation by Purchaser of the transactions contemplated
hereunder to be consummated by it.

 

Section 3.4 Non-contravention. Except for the approval of the Board of Directors
of Purchaser, which has not yet been obtained and which is not required to be
obtained in order to make this Agreement a legally binding Agreement of
Purchaser, the execution and delivery by Purchaser of this Agreement and the
documents, instruments, agreements and certificates contemplated hereby to which
it is or will be a party, the performance by Purchaser of its obligations
hereunder and thereunder and the consummation of the Contemplated Transactions
do not and will not (a) contravene or conflict with the Certificate (or
Articles) of Incorporation or Bylaws of Purchaser, or (b) contravene or conflict
with any applicable provision of any Law, regulation, rule, judgment,
injunction, Order or decree binding upon or applicable to Purchaser in any
material respect.

 

Section 3.5 Litigation. There is no action, suit, investigation or proceeding
pending against or, to Purchaser’s Knowledge, threatened against or affecting
Purchaser before any court or arbitrator or any governmental body, agency or
official, which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the Contemplated Transactions.

 

 

 

 33 

 

 

Article IV
CONDUCT OF BUSINESS

 

Section 4.1 Conduct of Business by the Company Pending the Transaction. The
Company and the Shareholders covenant and agree that, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing Date, unless Purchaser shall otherwise agree in
writing, the Company shall in all material respects conduct its business only in
the ordinary course of business, and the Company shall use reasonable efforts to
preserve substantially intact the business organization of the Company, to keep
available the services of the present officers, employees and consultants of the
Company and to preserve the present relationships of the Company with customers,
suppliers and other Persons with which the Company has significant business
relations, with the intent that such goodwill and ongoing business relationships
shall be unimpaired at the Closing Date, provided, however that prior to Closing
the Company shall, notwithstanding anything herein to the contrary, be permitted
to distribute to the Shareholders any cash or cash equivalents of the Company,
subject to the effects of Section 1.9 hereof. By way of amplification and not
limitation, except as contemplated by this Agreement, the Company shall not,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Closing Date, directly or
indirectly, undertake any of the following actions without the prior written
consent of Purchaser, unless otherwise expressly provided for in this Agreement:

 

(a)       amend or otherwise change the Certificate of Incorporation or Bylaws
of the Company;

 

(b)       issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class other than pursuant to the exercise of Stock Options
outstanding on the date of this Agreement, or any options, warrants, convertible
securities, exchangeable securities or other rights of any kind to acquire any
shares of capital stock of any class, or any other ownership interest
(including, without limitation, any phantom interest) in the Company, any of its
Affiliates;

 

(c)       sell, pledge, dispose or encumber any assets of the Company (other
than sales and dispositions in the ordinary course of business);

 

(d)       (i) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or (ii) amend the terms
or change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire any of its securities, including, without limitation, shares
of Common Stock or any option, warrant, convertible or exchangeable securities
or other right, directly or indirectly, to acquire shares of Common Stock, or
propose to do any of the foregoing, except for the termination of any
arrangement providing for the issuance of shares thereunder;

 

 

 

 34 

 

 

(e)       (i) acquire (by consolidation, or acquisition of stock or assets) any
material property or assets, make any investment in, or make any capital
contributions to, any corporation, partnership or other business organization or
division thereof, (ii) incur any Indebtedness, make any loans or advances,
(iii) enter into, terminate or amend any Material Contract or agreement other
than in the ordinary course, (iv) authorize any capital expenditures or
purchases of fixed assets which are, in the aggregate, in excess of $15,000; or
(v) enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this Section 4.1(e);

 

(f)       (i) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees, other than increases consistent
with past practices; provided such increases in the aggregate, shall not exceed
four percent (4%), (ii) grant any severance or termination pay to, or enter into
any severance agreement or other agreement providing for severance payments
with, any director, officer or other employee of the Company, (iii) establish,
adopt, enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any current or
former directors, officers or employees, (iv) enter into any employment or
consulting agreement, (v) except as otherwise expressly contemplated by this
Agreement, accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock option,
insurance or other compensation or benefits, or (vi) enter into, amend, waive or
terminate any agreement or arrangement with any director, officer, employee or
consultant, which limits or restricts the director, officer, employee or
consultant from engaging or competing in any business or in any geographic area;

 

(g)       take any action to change material accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);

 

(h)       make any material Tax election inconsistent with past practice, or
settle or compromise any material federal, state, local or foreign Tax
liability, or agree to an extension of a statute of limitations;

 

(i)       pay, discharge or satisfy any Claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the Financial Statements or incurred in the ordinary course of business and
consistent with past practice;

 

(j)       enter into any compromise or settlement of, or take any material
action with respect to, any litigation, action, suit, claim, proceeding or
investigation;

 

 

 

 35 

 

 

(k)       adopt or enter into a plan of complete or partial liquidation,
dissolution, consolidation, restructuring, recapitalization or other material
reorganization (other than the Transaction);

 

(l)       enter into any agreement, understanding or commitment that restrains,
limits or impedes the Company’s ability to compete with or conduct any business
or line of business;

 

(m)       plan, announce, implement or effect any reduction in force, lay-off,
early retirement program, severance program or other program or effort
concerning the termination of employment of employees of Company;

 

(n)       enter into any new agreement in an amount in excess of $15,000 (other
than contracts with customers entered into in the ordinary course of business
consistent with past practice) or which will remain in effect for longer than
one year from the date hereof or with terms other than ordinary course of
business terms consistent with past practice;

 

(o)       assign, license, transfer or impair in any way the Owned Intellectual
Property of the Company, such prohibited activities to include, without
limitation, licensing of the Company’s software, technology or Owned
Intellectual Property to any third party, disclosure of any trade secrets to any
third party with or without a non-disclosure agreement or pledging the Company’s
software, technology or Owned Intellectual Property as collateral in any manner
(except for non-exclusive licenses of Owned Intellectual Property of the Company
to customers of the Company in the ordinary course of customer contracts
consistent with Company’s past practice); or

 

(p)       take, or agree in writing or otherwise to take, any of the actions
described in Section 4.1(a) through (o) above, or any action which would make
any of the representations or warranties of the Company and/or Shareholders
contained in this Agreement untrue or incorrect in any material respect, prevent
the Company from performing, or cause the Company not to perform, its covenants
hereunder or that would or could reasonably be expected to, result in any of the
conditions of the Transaction set forth in Article VI not being satisfied.

 

Section 4.2 Filing of Tax Returns.

 

(a)       The Company shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns of the Company that are required to be filed on or
prior to the Closing Date (taking into account, for these purposes, any
extension of the time to file any such Tax Return), including any amended Tax
Returns required for such periods. Unless otherwise required by applicable Law,
every material position taken on such Tax Returns shall be reasonably consistent
with the methodology and elections employed by the Company in prior years. The
Company shall provide Purchaser with copies of any Tax Returns described in the
preceding sentence that have not been provided to Purchaser prior to the date
hereof.

 

 

 

 36 

 

 

(b)       Purchaser shall prepare or cause to be prepared and file or cause to
be filed any Tax Returns of the Company for taxable periods ending on or prior
to the Closing Date that are required to be filed after the Closing Date. For
the avoidance of doubt, the foregoing Tax Returns shall include, without
limitation, all applicable federal, state, and local payroll filings of the
Company, as well as any Forms W-2 and Forms 1099 or other documents provided to
any current or former employee or consultant of the Company with respect to any
payments made to such Persons through and including the Closing Date. Unless
otherwise required by applicable Law, every material position taken on such Tax
Returns shall be reasonably consistent with the methodology and elections
employed by the Company in prior years. Purchaser shall permit the Shareholders’
Representative to review and comment on each such Tax Return prior to filing as
provided herein. Not less than thirty (30) days before the earlier of the due
date of any such Tax Return or the date on which such Tax Returns are to be
filed, Purchaser shall furnish a draft of such Tax Return (as proposed to be
filed) to Shareholders’ Representative for his review. Not less than fifteen
(15) days before the earlier of the due date of any such Tax Return or the date
on which any such Tax Return is to be filed, the Shareholders’ Representative
shall forward to Purchaser any comments he may have relating to such Tax Return,
and Purchaser and the Shareholders’ Representative agree to resolve in good
faith any disputes regarding such Tax Return. Not less than five (5) days before
the earlier of the due date of such Tax Return or the date on which such Tax
Return is to be filed, Purchaser shall forward to the Shareholders’
Representative the Tax Return to be filed. Any dispute regarding such Tax
Returns that cannot be resolved by negotiation between Purchaser and the
Shareholders’ Representative shall be resolved by the Independent Firm;
provided, that, in resolving a dispute with respect to a Tax Return, the
Independent Firm shall be bound by the requirement that the Tax Return be
prepared in a manner consistent with past reporting practices of the Company
unless otherwise required by applicable law only (it being understood that a
position is in accordance with applicable law only if there is substantial
authority for such position). The fees and expenses of the Independent Firm
(a) shall be borne one-half (1/2) severally by the Shareholders in accordance
with each Shareholder’s Pro Rata Portion, and (b) shall be borne one-half (1/2)
by Purchaser. Purchaser and the Shareholders’ Representative shall make
available to the Independent Firm and to each other all relevant books and
records and working papers relating to the Tax Return under dispute and all
other items reasonably requested by the Independent Firm; provided, that neither
party shall not be required to provide any attorney-client privileged documents
or communications. If any dispute with respect to a Tax Return is not resolved
prior to the due date of such Tax Return, such Tax Return shall be filed in the
manner Purchaser deems correct and the Tax shown as due on such Tax Return shall
be paid in accordance with this Section 4.2(b), and if the dispute is
subsequently resolved by the Independent Firm in a manner that differs from the
manner in which the Tax Return was filed, Purchaser shall file an amended Tax
Return in a manner consistent with the resolution of the dispute. Any Tax refund
or Tax credit that relates to the portion of a Tax period covered by the Tax
Return ending on or before the Closing Date shall be paid to the Shareholders;
provided, that to the extent such refund or credit is attributable to a
carryback of Tax losses from Tax periods following the Closing Date, it shall
belong to Purchaser (it being agreed that Purchaser shall have no obligation to
carryback any such losses). All other Tax refunds or credits shall belong solely
to Purchaser. Likewise, to the extent not reflected in the Closing Balance Sheet
and paid by way of adjustment to the Purchase Price as provided in Section 1.8,
such portion of any Taxes paid by Purchaser which relates to the portion of any
such taxable period ending on the Closing Date shall be reimbursable to
Purchaser by the Shareholders, jointly and severally. For purposes of this
Section 4.2(b), in the case of any Taxes that are imposed on a periodic basis
and are payable for a taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire taxable period multiplied by a fraction
the numerator of which is the number of days in the taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company.

 

 

 

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(c)       Purchaser and the Shareholders’ Representative shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section 4.2 and any audit, litigation
or other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party’s request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Purchaser and Shareholders’ Representative agree to (i) retain all
books and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Purchaser or
Shareholders’ Representative, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (ii) give the other party reasonable written notice prior
to transferring, destroying or discarding any such books and records and, if the
other party so requests, the Company or Shareholders’ Representative, as the
case may be, shall allow the other party to take possession of such books and
records. In addition, Purchaser and the Shareholders’ Representative will, to
the maximum extent allowed by applicable Law, elect with the relevant taxing
authorities to treat the portion any Tax periods described in Section 4.2(b)
that begins before the Closing Date as a short taxable period that ends on the
Closing Date.

 

(d)       All transfer, documentary, sales, use, stamp, registration and other
similar such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be promptly paid by Shareholders in
accordance with their respective Pro Rata Portion. Any such Taxes of the Company
not paid by the Shareholders shall be reimbursed to Purchaser out of the
Holdback Amount. Purchaser shall file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable Law, the
other parties shall, and shall cause their Affiliates to, join in the execution
of any such Tax Returns and other documentation. The expense of such filings
shall be paid by the Shareholders by way of prompt offset/reimbursement out of
the Holdback Amount.

 

 

 

 

 38 

 

(e)       Purchaser shall have full responsibility for and discretion in
handling any Tax controversy relating to a Tax period ending on or prior to or
subsequent to the Closing Date. The Shareholders’ Representative shall furnish
to Purchaser or give Purchaser access to all material relevant information in
its possession concerning the Tax controversy that is the subject of such
proceeding. The Shareholders’ Representative shall have the right to participate
in the defense or settlement of such straddle proceeding, at its sole cost and
expense, through its own legal counsel. Purchaser shall not settle or compromise
a claim or consent to the entry of any judgment that would adversely affect the
Shareholders (or the Company for any period or portion thereof ending on or
before the Closing Date) without the prior written consent of the Shareholders’
Representative, which consent shall not be unreasonably withheld, conditioned or
delayed.

 

Article V
COVENANTS

 

Section 5.1 Access to Information; Confidentiality. Upon reasonable notice the
Company and the Shareholders shall afford, to the officers, employees,
accountants, counsel, financial advisors and other representatives of Purchaser
reasonable access during normal business hours, during the period prior to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, the Company shall furnish promptly to Purchaser all
information concerning its business, properties and personnel as Purchaser may
reasonably request, and the Company and the Shareholders shall make available to
Purchaser the appropriate individuals (including attorneys, accountants and
other professionals) for discussion of its business, properties and personnel as
Purchaser may reasonably request.

 

Section 5.2 Consents; Approvals. The Company and the Shareholders shall each use
their best efforts to take all appropriate action to do or cause to be done all
things necessary, proper or advisable under applicable Laws to consummate the
Transaction and the other Contemplated Transactions, including, without
limitation, using their best efforts to obtain all consents, waivers, approvals,
authorizations or orders of Governmental Authorities and parties to contracts
(including Material Contracts) with the Company, and the Company shall make all
filings including, without limitation, all filings with Governmental Authorities
required in connection with the authorization, execution and delivery of this
Agreement by the Company and the Shareholders, and the consummation by the
Company and the Shareholders of the Contemplated Transactions and to fulfill the
conditions to the Transaction.

 

Section 5.3 Litigation and Investigations Support. If and for so long as any
party hereto is actively contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
involving a third party in connection with (a) the Contemplated Transactions, or
(b) any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Company, or its business or properties,
including audits or reviews of pricing data, product quality, product failure or
government property instituted by any Governmental Authority or current or
former customer of the Company or Purchaser, the Shareholders’ Representative
will cooperate with the contesting or defending party and its counsel in the
contest or defense, and provide such testimony and access to its books and
records as shall be reasonably necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending party is entitled to indemnification
therefor as provided in this Agreement).

 

 

 

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Section 5.4 No Solicitation of Competing Transaction. Until the earlier of the
Closing Date or the termination of this Agreement in accordance with Article
VII, the Company and the Shareholders shall not (and the Company and the
Shareholders shall cause their Affiliates, officers, directors, employees,
representatives and agents, including investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, or provide any information to,
any Person or group (other than Purchaser, any of their Affiliates or
representatives) concerning any Acquisition Proposal. The Company and the
Shareholders shall not enter into any agreement with respect to any Acquisition
Proposal. Upon execution of this Agreement, the Company and the Shareholders
shall immediately cease any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing, and
the Company and the Shareholders shall request (or if it has the contractual
right to do so, demand) the return of all documents, analyses, financial
statements, projections, descriptions and other data previously furnished to
others in connection with efforts to sell the Company. The Company and the
Shareholders shall promptly notify Purchaser of the existence of any proposal or
inquiry received by the Company or the Shareholders, and the Company and the
Shareholders shall promptly communicate to Purchaser the terms of any proposal
or inquiry which any of them may receive (and shall immediately provide to
Purchaser copies of any written materials received by the Company or the
Shareholders (or a summary of all material terms if oral) in connection with
such proposal, discussion, negotiation or inquiry) and the identity of the party
making such proposal or inquiry.

 

Section 5.5 Notification of Certain Matters. Until the earlier of the Closing
Date or the termination of this Agreement in accordance with Article VII, the
Company and the Shareholders shall give prompt notice to Purchaser if any of the
following occurs after the date of this Agreement: (a) any notice of, or other
communication relating to, a breach, default, or event which with notice or
lapse of time or both could become a breach or default, under any Material
Contract; (b) receipt of any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the Contemplated Transactions, other than a consent disclosed pursuant to
Section 2.5 or Section 2.6 of the Company Disclosure Schedules; (c) receipt of
any notice or other communication from any Governmental Authority in connection
with the Contemplated Transactions; (d) the occurrence or non-occurrence of any
fact or event which could reasonably be expected to cause any covenant,
condition or agreement hereunder not to be complied with (including those in
Article VI) or satisfied in any material respect or any representation or
warranty to be breached in any material respect; (e) the commencement or threat
of any litigation or government investigation involving or affecting the Company
or any of its properties or assets; (f) notice of any cancellation or material
change in any insurance maintained by the Company, and (g) the occurrence of any
event that, had it occurred prior to the date of this Agreement would have
constituted a Material Adverse Effect. The delivery of any notice pursuant to
this Section 5.5 or otherwise after execution of this Agreement shall not be
deemed to cure any breach of any representation, warranty, or covenant or limit
or affect the remedies of the party receiving the notice.

 

 

 

 

 40 

 

Section 5.6 Further Action. Upon the terms and subject to the conditions hereof,
each of the parties shall use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the Contemplated Transactions, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings, and otherwise to satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement.

 

Section 5.7 Preliminary Closing Balance Sheet; Interim Balance Sheet.

 

(a)       Concurrently with the Shareholders’ Representative’s delivery of the
Preliminary Closing Balance Sheet and Preliminary Working Capital Statement
pursuant to Section 1.9(a), the Shareholders’ Representative will deliver a
certificate certifying that the Preliminary Closing Balance Sheet and
Preliminary Working Capital Statement was prepared in good faith and presents
fairly in all material respects the financial position, assets and liabilities
of the Company as of the Closing, based on assumptions believed to be true at
the time of preparation, and prepared in accordance with GAAP.

 

(b)       The Company shall provide to Purchaser as soon as practicable (but no
more than fifteen (15) days) after the end of each calendar month prior to the
Closing Date (i) financial statements of the Company, consisting of a balance
sheet as of the end of such month and an income statement for that month and for
the portion of the year then ended, (ii) a schedule of one-time and personal
add-backs, including a brief description of each such add-back, to the income
statement included in such interim financial statements that includes the same
add-back items that were included in the pro forma financial statements, and
(iii) a certificate (each, an “Interim Financials Certificate”) certifying that
each set of interim financial statements and other financial information to be
delivered to Purchaser pursuant to this Section 5.7: (A) presents fairly in all
material respects the financial position, assets and liabilities of the Company
as of the dates thereof and the revenues, expenses, results of operations and
cash flows of the Company for the period covered thereby as of the dates and for
the period covered thereby, in each case in conformity with GAAP and, to the
extent consistent with GAAP, the Company’s past accounting practices applied
consistently during such periods in accordance with the past accounting
practices of the Company, subject to the lack of footnote disclosures; (B) is in
accordance with the books and records of the Company, does not reflect any
transactions which are not bona fide transactions; (C) makes full and adequate
disclosure of, and provision for, all material obligations and liabilities of
the Company as of the date thereof; and (D) does not include any assets or
liabilities of any other Person.

 

Section 5.8 Updating of Company Disclosure Schedule. The Company and the
Shareholders shall notify Purchaser of any changes, additions, or events which
may cause any change in or addition to the Company Disclosure Schedule delivered
by the Company and the Shareholders under Article II promptly after the
occurrence of the same and again at the Closing by delivery of appropriate
updates to all such Company Disclosure Schedule. No such notification shall cure
any misrepresentation or breach of any representation, warranty or covenant of
the Company and the Shareholders, nor shall any such notification be considered
to constitute or give rise to a waiver by Purchaser of any condition set forth
in this Agreement except to the extent Purchaser specifically agrees thereto in
writing.

 

 

 

 41 

 

 

Article VI
CONDITIONS TO THE CLOSING

 

Section 6.1 Conditions to Obligation of Each Party to Effect the Transaction.
The respective obligations of each party to effect the Transaction shall be
subject to the satisfaction or waiver to the extent permissible under Law at or
prior to the Closing Date of all the following conditions:

 

(a)       Orders, Injunctions. No foreign or domestic Law, Order, injunction,
judgment or decree that prohibits, restrains, enjoins or otherwise prohibits
(whether temporarily, preliminarily or permanently) consummation of the
Transaction shall have been enacted, issued, promulgated, enforced or entered by
any court or Governmental Authority of competent jurisdiction and there shall
not be pending any suit, action or proceeding by any Governmental Authority
which seeks to restrain, enjoin or otherwise prohibit (whether temporarily,
preliminarily or permanently) consummation of the Transaction; provided, that
each of the parties hereto shall have used its reasonable best efforts to
prevent any such enactment, issuance, promulgation, enforcement or entry and to
appeal as promptly as practicable any such Law.

 

Section 6.2 Additional Conditions to Obligation of Purchaser to Effect the
Transaction. The obligations of Purchaser to effect the Transaction and
consummate the other Contemplated Transactions are also subject to the
satisfaction or waiver by Purchaser at or prior to the Closing of the following
conditions:

 

(a)       Representations and Warranties. Without giving effect to any
supplement to the Company Disclosure Schedule, the representations and
warranties of the Company and the Shareholders set forth in this Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of the Company and the Shareholders set forth in
this Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date, as though made on and as of the Closing Date, except to the extent
the representation or warranty is expressly limited by its terms to another
date, and Purchaser shall have received a certificate signed on behalf of the
Company by an executive officer of the Company and by each of the Shareholders
to such effect.

 

(b)       Performance of Obligations of the Company. The Company and, as
applicable, the Shareholders shall have performed or complied in all material
respects with all obligations, covenants and agreements required to be performed
by it or them under this Agreement at or prior to the Closing Date, and
Purchaser shall have received a certificate signed on behalf of the Company by
an executive officer of the Company to such effect.

 

 

 

 

 42 

 

(c)       Consents and Approvals. All consents and approvals necessary to the
consummation of the Contemplated Transactions, including, without limitation,
consents from parties to loans, leases and other agreements and consents from
any Governmental Authority shall have been duly obtained, each in form and
substance reasonably satisfactory to Purchaser.

 

(d)       Board of Directors Approval. The Board of Directors of Purchaser shall
have approved this Agreement, the Contemplated Transactions and the Closing.

 

(e)       No Material Adverse Effect. There will not have been any Material
Adverse Effect to the Company, and Purchaser will have received a certificate to
such effect signed by an executive officer of the Company.

 

(f)       Non-Competition Agreement. Purchaser shall have received a
non-competition agreement substantially in the form of Exhibit A hereto (the
“Non-Competition Agreement”), duly executed by each of the Shareholders.

 

(g)       Employee Retention. Purchaser shall be satisfied in its reasonable
judgment that sufficient Company employees shall remain employed by the Company
immediately following the Closing Date to continue the business of the Company
following the Closing Date.

 

(h)       Delivery of Books and Records. At the Closing, the Company shall
deliver to Purchaser physical possession of all of the tangible assets and
properties of the Company, including without limitation, its original
Certificates of Incorporation, minute books, stock records and other corporate
records, Material Contract files and records, and documentation of all Company
IP Rights owned or licensed by the Company.

 

(i)       Audited Financial Statements. Purchaser shall have received the
Audited Financial Statements, along with a certificate certifying that the
Audited Financial Statements: (A) presents fairly in all material respects the
financial position, assets and liabilities of the Company as of the dates
thereof and the revenues, expenses, results of operations and cash flows of the
Company for the period covered thereby as of the dates and for the period
covered thereby, in each case in conformity with GAAP and, to the extent
consistent with GAAP, the Company’s past accounting practices applied
consistently during such periods in accordance with the past accounting
practices of the Company, subject to the lack of footnote disclosures; (B) is in
accordance with the books and records of the Company, does not reflect any
transactions which are not bona fide transactions; (C) makes full and adequate
disclosure of, and provision for, all material obligations and liabilities of
the Company as of the date thereof; and (D) does not include any assets or
liabilities of any other Person.

 

(j)       Resignation of Officers and Directors. The officers and directors of
the Company in office immediately prior to the Effective Time will have resigned
in writing effective as of the Effective Time.

 

 

 

 43 

 

 

(k)       No Other Securities. All (i) options (including, without limitation,
the Stock Options), rights, or other securities that entitle the holders thereof
to purchase or otherwise acquire any shares of the capital stock of the Company,
and (ii) notes, evidence of indebtedness, stock of other securities issued by
the Company that are convertible into or exchangeable for any shares of the
capital stock of the Company or any securities set forth in clause (i) above
(collectively, “Other Securities”), will have been validly terminated or
exercised in full and thereby converted into shares of Common Company Stock, in
accordance with their current terms and conditions, so that no Other Securities
will be outstanding immediately prior to the Effective Time.

 

(l)       Certificates. The original Certificates in respect of all issued and
outstanding shares of Company Common Stock shall have been delivered to
Purchaser

 

(m)        (or purchaser shall have received an affidavit of lost certificate in
form reasonably acceptable to Purchaser).No Claim Regarding Stock Ownership or
Sale Proceeds. There must not have been made or threatened by any Person any
claim asserting that such Person (a) is the holder or the beneficial owner of,
or has the right to acquire or to obtain beneficial ownership of, any stock of,
or any other voting, equity, or ownership interest in, the Company, or (b) is
entitled to all or any portion of the consideration payable for the Company
Common Stock hereunder.

 

(n)       Consortium Agreements. Purchaser shall have received assurances,
satisfactory to Purchaser in its sole discretion, that (i) all payments due
under the Consortium Payments have been made in full and there are no
outstanding balances due under any Consortium Agreement as of the Closing; and
(ii) all parties to the Consortium Agreements intend to continue under the
Consortium Agreements consistent with past practices following the Closing.

 

(o)       Closing Documents. Purchaser shall have received the following
agreements and documents, each of which shall be in full force and effect:

 

(i)       certificates executed by an executive officer on behalf of the
Company, and the Shareholders, each dated the date of Closing (the “Bring-Down
Certificate”), certifying (A) that all representations and warranties set forth
in Article II and Article IIA are true, accurate and complete as of the Closing
Date as if such representations and warranties were made on the Closing Date
(except to the extent that such representations and warranties expressly relate
solely to an earlier date in which case such representations and warranties
shall have been true, accurate and correct on and as of such earlier date (other
than the date of this Agreement, it being understood that any representation or
warranty that by its terms speaks as of the date of this Agreement (and words of
similar import) shall be made as of the Closing Date under the Bring-Down
Certificate)), and (B) the satisfaction of the conditions precedent contained in
Sections 6.2(a) and 6.2(b);

 

(ii)       a certificate of the Secretary of the Company attaching a true and
complete copy of (A) the Company’s Certificate of Incorporation, as amended to
date and certified by the Secretary of State of the State of North Carolina,
(B) the Bylaws of the Company, as amended to date, (C) resolutions adopted by
the Board and all Shareholders of the Company approving the Agreement, the
Transaction and the Contemplated Transactions;

 

 

 

 44 

 

 

(iii)       certificates from appropriate authorities as to the good standing
of, and payment of all required fees by the Company in its jurisdiction of
organization and each jurisdiction in which it is qualified to do business as a
foreign entity, as of a recent date prior to Closing;

 

(iv)       the FIRPTA Certificates;

 

(v)       a General Release of Claims substantially in the form of Exhibit B,
(the “Shareholder Release”), duly executed by each of the Shareholders;

 

(vi)       a Payoff Letter in form and substance satisfactory to Purchaser from
each of the Persons referenced in Section 1.10, confirming amounts due from the
Company;

 

(vii)       a copy of the Company Data Site, in a format acceptable to Purchaser
in its sole discretion, including any secured folders located therein;

 

(viii)       an IRS Form W-9 or the appropriate version of IRS Form W-8, as
applicable, duly executed by each Shareholder; and

 

(ix)       such other documents as Purchaser may reasonably request for the
purpose of (A) evidencing the accuracy of any of the Shareholder’s
representations and warranties, (B) evidencing the performance by the
Shareholder or the Company of, or the compliance by the Shareholder or the
Company with, any covenant or obligation required to be performed or complied
with by such Shareholder or the Company, (C) evidencing the satisfaction of any
condition referred to in Section 6.2, or (D) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.

 

Section 6.3 Additional Conditions to Obligation of the Company and the
Shareholders to Effect the Transaction. The obligation of the Company and the
Shareholders to effect the Transaction and consummate the other transactions
contemplated hereby is also subject to the satisfaction by Purchaser or waiver
by the Company and the Shareholders the following conditions:

 

(a)       Representations and Warranties. The representations and warranties of
Purchaser set forth in this Agreement that are qualified as to materiality shall
be true and correct, and the representations and warranties of Purchaser set
forth in this Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Company shall have received a certificate signed on behalf
of Purchaser by an executive officer of Purchaser to such effect.

 

(b)       Performance of Obligations of Purchaser. Purchaser shall have
performed or complied in all material respects with all obligations required to
be performed by it under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed on behalf of Purchaser by an
executive officer of Purchaser to such effect.

 

 

 

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Article VII
TERMINATION

 

Section 7.1 Termination. This Agreement may be terminated at any time prior to
the Closing, notwithstanding approval thereof by the shareholders of the
Company:

 

(a)       by mutual written consent of Purchaser and the Shareholders’
Representative;

 

(b)       by either Purchaser or the Shareholders’ Representative, if a court of
competent jurisdiction or Governmental Authority shall have issued a
nonappealable final order, decree or ruling or taken any other action having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Transaction (provided that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party who has not complied with its
obligations under Section 5.2 and Section 5.6 and such noncompliance materially
contributed to the issuance of any such order, decree or ruling or the taking of
such action);

 

(c)       by either Purchaser or the Shareholders’ Representative, if the
Effective Time shall not have occurred on or before June 30, 2017; provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose breach or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, such
failure of the Closing to occur; and

 

(d)       by Purchaser or the Shareholders’ Representative, (i) if any
representation or warranty of the other set forth in this Agreement that are
qualified by reference to materiality shall not be true and correct or any
representation or warranty of the other set forth in this Agreement that is not
qualified by reference to materiality shall not be true and correct in all
material respects in each case as of the date of this Agreement and as of the
Closing Date, as though made on and as of the Closing Date, except to the extent
the representation or warranty is expressly limited by its terms to another
date, or (ii) upon a breach of or failure to perform in any material respect any
covenant or agreement on the part of the other set forth in this Agreement,
except in each of (i) and (ii) above, where the failure to perform such
covenants or agreements or the failure of such representations and warranties to
be so true and correct would not have a Material Adverse Effect (either (i) or
(ii) above being a “Terminating Breach”).

 

Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, (a) this Agreement shall forthwith become
void and have no further force or effect, and (b) the parties shall have no
further liability under this Agreement; provided, that if this Agreement is
terminated by (x) a party because of a Terminating Breach of this Agreement by
the other party or because one or more of the conditions to the terminating
party’s obligations under this Agreement is not satisfied as a result of the
other party’s failure to comply with its obligations hereunder, the terminating
party’s right to pursue all legal remedies and the other party’s liability in
respect thereof shall survive such termination unimpaired, or (y) Purchaser, if
the Company or any Shareholder has breached the terms of Section 5.1 or Section
5.4, in which case, the Company shall immediately pay for or reimburse Purchaser
for its reasonable out-of-pocket expenses incurred by it or on its behalf in
connection with the proposed Transaction, including but not limited to
attorney’s fees and accountant’s fees. Notwithstanding the foregoing, the
obligations of the parties contained in this Section 7.2, and in the NDA shall
survive any such termination.

 

 

 

 46 

 

 

Article VIII
INDEMNIFICATION

 

Section 8.1 Indemnification by Shareholders. Each of the Majority Shareholders
shall, jointly and severally, and all other Shareholders, severally and not
jointly, shall indemnify, defend and hold harmless in the manner and subject to
the limitations and qualifications set forth in this Article VIII, Purchaser and
its Affiliates (which shall include the Company following the Effective Time)
and their respective officers, directors, agents, employees, subsidiaries,
partners, members, controlling persons, agents, accountants, attorneys,
successors and assigns (each, an “Purchaser Indemnitee”) from and against any
and all, actions, suits, proceedings, claims, complaints, disputes, arbitrations
or investigations or written threats thereof, including, without limitation, any
claim by a third party (collectively, “Claims”), and/or Losses resulting from or
arising out of:

 

(a)       any breach of any representation or warranty by (i) the Company or any
of the Shareholders in this Agreement and/or the Bring-Down Certificate, and
(ii) the Company or any of the Shareholders in any Transaction Documents, in
each case of clauses (i) and (ii), (which breach shall be determined for
purposes of this Article VIII without regard to any qualification based on
materiality or Material Adverse Effect contained in such representations and
warranties), including any certificate delivered in connection therewith;

 

(b)       (i) any breach by any Shareholder or (ii), prior to the Closing, the
Company, in each case of clauses (i) and (ii), of any covenant or obligation of
any such Person in this Agreement or any Transaction Document or any certificate
delivered therewith;

 

(c)       notwithstanding any matter listed in the Company Disclosure Schedule,
(i) any Taxes imposed on the Company or any Shareholder for any period ending on
or before the Closing Date (or for the portion of any period up through the
Closing Date to the extent a period does not close on such date), including
without limitation any Taxes, fees and expenses for which Purchaser is entitled
to be reimbursed pursuant to Section 4.2(b); and (ii) Taxes otherwise imposed on
the Company or any Shareholder by virtue of the Transaction and any Contemplated
Transactions, including without limitation any Taxes, fees and expenses for
which Purchaser is entitled to be reimbursed pursuant to Section 4.2(d);

 

 

 

 

 47 

 

(d)       notwithstanding any matter listed in the Company Disclosure Schedule,
any claim by a current Company equity holder, former Company equity holder or
any other Person following the Effective Time seeking to assert, or based upon
the following: (i) ownership or rights to ownership of any stock, options,
warrants or other rights to acquire stock of the Company; (ii) any rights of an
equity holder of the Company in the capacity of an equity holder, including any
option or preemptive rights or rights to notice or to vote (together with the
rights described under (i), the “Ownership Rights”); (iii) any Ownership Rights
under any of the Company charter documents or any other agreement with the
Company; (iv) any claim regarding any issuance, reissuance, cash-out,
termination or cancellation of any stock, options or other securities by the
Company; (v) any Claim that his, her or its securities of the Company were
wrongfully repurchased or transferred by the Company; or (vi) the Funds Flow
Memorandum and any information contained therein;

 

(e)       any Indebtedness of the Company existing prior to the Closing;

 

(f)       any litigation, arbitration or suit against the Company or any of its
directors, officers or employees in their capacity as such that relates to
events occurring or circumstances existing prior to the Closing, by any Person
other than Purchaser or any of its Affiliates or any of their successors;

 

(g)       any Transaction Expenses;

 

(h)       any amounts payable to the Company’s employees (whether under the
Company’s Employee Plans or otherwise) by reason of the Transaction being deemed
a termination of the employment of the Company’s employees or contractors,
including, without limitation, the following (for clarity, but only to the
extent the obligation arises by reason of the Transaction being deemed a
termination of employment of the Company’s employees or contractors): severance,
salary, commission, bonus, incentives, vacation pay or other benefit accruals or
any Termination Liability with respect to such employees or contractors of the
Company and their eligible dependents in respect of health insurance under COBRA
and any other similar state Laws; and

 

(i)       any Losses with respect to the termination of any Employee Plan in
connection with the Contemplated Transactions (but not including any ordinary
administrative costs resulting from Purchaser or the Company’s voluntary
termination of an Employee Plan following Closing), any unfunded liability under
any such Employee Plan, and/or any accrued but unpaid claim under such Employee
Plan.

 

The parties acknowledge and agree that, if the Company suffers, incurs or
otherwise becomes subject to any Losses as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or obligation,
then (without limiting any of the rights of the Company as a Purchaser
Indemnitee) Purchaser shall also be deemed, by virtue of its ownership of the
stock of the Company, to have incurred Losses as a result of and in connection
with such inaccuracy or breach. The parties further acknowledge and agree that
the Company’s obligations hereunder shall expire at the Effective Time.

 

 

 

 

 48 

 

Section 8.2 No Contribution; Shareholders’ Representative. The Shareholders
shall have no right to seek contribution from the Company with respect to all or
any part of any matter, including the indemnification obligations under this
Article VIII. In connection with any exercise by Purchaser of its rights
hereunder, Purchaser shall be entitled to make all claims through and deal
exclusively with the Shareholders’ Representative.

 

Section 8.3 Indemnification by Purchaser. Purchaser agrees to indemnify, defend
and hold harmless in the manner and subject to the limitations and
qualifications set forth in this Article VIII, the Shareholders, and their
respective agents, representatives, Affiliates, successors and assigns
(collectively, the “Company Indemnitees,” and, together with Purchaser
Indemnitees, the “Indemnitees”) against, from and in respect of any and all
Claims and/or Losses based upon, arising out of, or otherwise in respect of or
which may be incurred by virtue of or result from (a) the inaccuracy in or
breach of any representation or warranty made by Purchaser in this Agreement,
and/or (b) any covenant or agreement made by Purchaser in this Agreement or any
Transaction Documents or any certificate delivered therewith, except to the
extent that any such Losses arise out of or result from a breach by the Company,
or the Shareholders of any representations, warranties or covenants in this
Agreement and/or any documents, agreements, instruments or certificates
contemplated by this Agreement, or any matters for which a Purchaser Indemnitee
has a right of indemnification pursuant to Section 8.1.

 

Section 8.4 Survival. All representations and warranties of the parties
contained in this Agreement shall, subject to the limitations set forth in this
Section 8.4, survive the Closing. The representations and warranties contained
in or made pursuant to this Agreement and/or any documents, agreements,
instruments or certificates contemplated by this Agreement, and the indemnity
obligations based on a breach of such representations and warranties under
Section 8.1(a) and 8.3(a) shall terminate on, and no Claim or action based
solely thereon may be initiated after the Holdback Release Date; provided, that
(i) the representations and warranties under Section 2.16 (Government
Contracts), Section 2.17 (Proprietary Rights), Section 2.22 (Employee Benefit
Plans) (the “Extended Representations”) and the related indemnity obligations
under Section 8.1(a) shall survive until the date that is the third (3rd)
anniversary of the Closing Date, and (ii) the representations and warranties
under Section 2.1 (Organization and Qualification), Section 2.2 (Certificate of
Incorporation and Bylaws), Section 2.3 (Capitalization), Section 2.4 (Authority
Relative to this Agreement), Section 2.18 (Taxes), Section 2.20 (Environmental
Matters), Section 2A.1 (Valid Title), Section 2A.2 (Authorization; Binding
Effect) (the “Fundamental Representations”) and the related indemnity
obligations under Section 8.1(a) shall survive until the date that is the tenth
(10th) anniversary of the Closing Date. Except as otherwise expressly provided
herein, the covenants and agreements contained in this Agreement shall survive
the execution and delivery hereof and the consummation of the Contemplated
Transactions until the expiration of the applicable statute of limitations
(including any extensions or waivers thereto). Notwithstanding any other
provision of this Agreement, if any Claim for Losses is asserted by any
Indemnitee prior to the termination of the representation, warranty or
indemnification obligation, the rights of such Indemnitee shall continue with
respect to such Claim until the resolution and satisfaction thereof even if not
finally resolved until after such termination. It is the express intent of the
parties that, if the applicable survival period for an item as contemplated by
this Section 8.4 is shorter or longer than the statute of limitations that would
otherwise have been applicable to such item, then, by contract, the applicable
statute of limitations with respect to such item shall be reduced or extended to
the survival period contemplated hereby. The parties further acknowledge that
the time periods set forth in this Section 8.4 for the assertion of claims under
this Agreement are the result of arms-length negotiation among the parties and
that they intend for the time periods to be enforced as agreed by the parties.

 

 

 

 

 49 

 

Section 8.5 Certain Limitations.

 

(a)       No Claim by a Purchaser Indemnitee or Company Indemnitee for
indemnification for claims for breaches of representations and warranties
pursuant to Section 8.1(a) or Section 8.3(a), respectively, may be made until
the amount of all Losses related to such Claims exceeds $75,000 (the “Basket”)
whereupon the Indemnifying Party shall be obligated to pay in full up to the Cap
all amounts for indemnification, including the entire amount of the Basket. The
indemnification obligations for claims for breaches of representations and
warranties pursuant to Section 8.1(a) or Section 8.3(a), respectively, apply,
and the Purchaser Indemnitee or Company Indemnitee shall be entitled to exercise
indemnification rights under Section 8.1(a) or Section 8.3(a), respectively,
only for any individual claim or series of similar or related claims with
respect to which the aggregate Losses resulting therefrom exceed $5,000 (and all
Losses, if they so exceed $5,000, arising from any such claim or series of
similar or related claims shall be fully indemnified and counted toward the
Basket).

 

(b)       The maximum amount of indemnifiable Losses in the aggregate which may
be recovered from the Shareholders or Purchaser, respectively, for
indemnification for breaches of representations and warranties pursuant to
Section 8.1(a) or Section 8.3(a), respectively, and pursuant to Section
7.2(b)(y) with respect to the Shareholders, shall not exceed an amount equal to
twenty percent (20%) of the Purchase Price payable to the Shareholders (the
“Cap”).

 

(c)       Notwithstanding the limitations set forth in Section 8.5(a) and
Section 8.5(b), neither the Cap nor the Basket shall apply to (i) Claims based
on a breach of the Fundamental Representations or the indemnification
obligations under Section 8.1(a) with respect to such matters, and
(ii) indemnification obligations under Section 8.1(b) through Section 8.1(i) and
Section 8.3(b), for which for both clauses (i) and (ii) the maximum amount of
indemnifiable Losses in the aggregate which may be recovered from the
Shareholders, or the Purchaser, respectively, shall be the Purchase Price
payable to the Shareholders, plus (x) if there is a Shareholder Excess, the
Company Adjustment Amount, and minus (y) if there is a Purchaser Deficit, the
Purchaser Adjustment Amount; provided, however, that the maximum amount of
indemnifiable Losses which may be recovered from each Shareholder (other than
the Majority Shareholders) with respect to indemnification claims under Section
8.1 of this Agreement, shall not exceed such Shareholder’s Pro Rata Portion of
the Purchase Price, plus (x) if there is a Shareholder Excess, the Company
Adjustment Amount, and minus (y) if there is a Purchaser Deficit, the Purchaser
Adjustment Amount..

 

(d)       Notwithstanding anything contained in this Agreement to the contrary,
(i) no Indemnitee shall be entitled to duplicative recoveries arising out of the
same facts or circumstances, or (ii) no Purchaser Indemnitee shall be entitled
to indemnification for Losses for which Purchaser has otherwise been compensated
pursuant to the adjustments pursuant to Section 1.9.

 

 

 

 

 50 

 

(e)       Losses payable under Article VIII shall be calculated after giving
effect to proceeds actually received by an Indemnitee or their Affiliates from
insurance policies maintained by the Indemnitee or their Affiliates covering the
Losses that are the subject of the claim for indemnification); provided that the
amount deemed to be recovered under insurance policies will also be net of the
deductible for such policies and any increase in the premium (and retro-premium
adjustments) for such policies to the extent arising out of or in connection
with such Losses.

 

(f)       The limitations set forth in this Section 8.5 shall not apply to
Claims based on fraud or intentional misrepresentation, and any such Claims
shall be excluded in calculating the limitations on indemnification obligations
of Shareholders set forth in this Section 8.5.

 

(g)       Following the Closing, indemnification pursuant to the provisions of
this Article VIII shall be the exclusive remedy of the parties for any
misrepresentation or breach of any warranty or covenant contained in this
Agreement (without limiting, and without any prejudice to, any right or remedy
set forth in any other Transaction Document); provided, however, nothing in this
Agreement shall limit any party’s equitable remedies or any remedy any party
hereto may have with respect to fraud or intentional breach.

 

Section 8.6 Notice of Indemnification Claims; Notice of Claims.

 

(a)       Promptly after an Indemnitee becomes aware of (i) any facts or events
that could give rise to indemnification hereunder, (ii) a Claim made by a third
party against such Indemnitee, or (iii) facts or circumstances establishing that
an Indemnitee has experienced or incurred Losses subject to indemnification
under this Article VIII, then, if the Indemnitee is a Purchaser Indemnitee, such
Purchaser Indemnitee shall give to the Shareholders’ Representative, or, if the
Indemnitee is a Company Indemnitee, then the Shareholders’ Representative shall
give to Purchaser, prompt written notice thereof (in each case, an
“Indemnification Notice”). The failure to give notice pursuant to Section 8.6(a)
or any other similar notice provision of this Agreement shall not affect or
limit the Indemnitee’s rights hereunder except, and then only to the extent
that, (A) the delay in giving, or failure to give, the notice is determined by
final judgment of a court of competent jurisdiction or an arbitrator of
competent authority to have actually and materially prejudiced the recipient’s
ability to defend against the Claim or (B) notice is given after the expiration
of any applicable survival period set forth in Section 8.4. To the extent
practicable under the circumstances taking into account the information readily
available to the Indemnitee at such time, the Indemnification Notice will
describe with reasonable specificity (x) the nature of and the basis for the
set-off or indemnification Claim, including any relevant supporting
documentation, and (y) if possible, a reasonable estimate of all Losses
associated therewith.

 

(b)       Procedure in Event of Indemnification Claim. Subject to the
limitations in Section 8.4 and Section 8.5 hereof, if an Indemnitee desires to
assert an indemnification Claim pursuant to Section 8.1 or Section 8.3, the
Indemnitee promptly shall provide an Indemnification Notice in accordance with
the procedures set forth in this Section 8.6(a). Subject to Section 8.4 and
Section 8.5, if the recipient of a duly and timely delivered Indemnification
Notice does not object within thirty (30) days after receipt of the
Indemnification Notice to the propriety of the indemnification Claims described
as being subject to indemnification pursuant to Section 8.1 or Section 8.3 or
the amount of Losses asserted in the Indemnification Notice, the indemnification
Claims described and, if applicable, the amount of Losses asserted in the
Indemnification Notice shall be deemed final and binding (hereinafter,
collectively with any Claims either agreed to between the parties or finally
determined in accordance with Section 9.5, “Permitted Indemnification Claims”).
If the recipient of a duly and timely delivered Indemnification Notice contests
the propriety of an indemnification Claim described in the Indemnification
Notice or the amount of Losses associated with such Claim, then such recipient
shall deliver to the Indemnitee a written notice detailing with reasonable
specificity all specific objections such recipient has with respect to the
indemnification Claims contained in the Indemnification Notice (“Indemnification
Objection Notice”). If the objecting party and the Indemnitee are unable to
resolve the disputed matters described in the Indemnification Objection Notice
within fifteen (15) Business Days after the date the Indemnitee received the
Indemnification Objection Notice, the disputed matters will be subject to the
dispute resolution procedures set forth in Section 9.5 hereof. Subject to
Section 8.4 and Section 8.5, any undisputed indemnification Claims or Losses
contained in the Indemnification Notice shall be deemed to be final and binding
and shall constitute a Permitted Indemnification Claim. In addition, subject to
Section 8.4 and Section 8.5, if the procedures in Section 9.5 result in all or
any portion of an indemnification Claim properly being subject to
indemnification pursuant to Section 8.1 or Section 8.3, such Claim or portion
thereof shall be final and binding and shall constitute a Permitted
Indemnification Claim.

 

 

 

 

 51 

 

(c)       Defense of Third Party Claims. After receipt of an Indemnification
Notice in respect of a Claim brought by a third party, Purchaser or
Shareholders’ Representative, as applicable, receiving such Notice (the
“Assuming Party”) shall have the right to assume the defense (at the Assuming
Party’s sole cost and expense) of any such Claim through counsel of the Assuming
Party’s own choosing by so notifying the Indemnitee in writing within thirty
(30) days of receipt of such Indemnification Notice; provided, however, that any
such counsel shall be reasonably satisfactory to the Indemnitee. Each Indemnitee
shall have the right to employ separate counsel in such Claim and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the Indemnitee unless: (i) the Assuming Party has agreed in writing
to pay such expenses; (ii) the Assuming Party has failed promptly to assume the
defense and employ counsel reasonably satisfactory to such Indemnitee and such
expenses would otherwise constitute Losses indemnifiable under Section 8.1 or
Section 8.3 (as limited by Section 8.4 and Section 8.5); or (iii) the named
parties to any such Claim (including any impleaded parties) include any
Indemnitee and the Assuming Party or an Affiliate of the Assuming Party, and
such Indemnitee shall have been advised by counsel that either (x) there may be
one or more legal defenses available to it which are different from or in
addition to those available to the Assuming Party or such Affiliate or (y) a
conflict of interest may exist if such counsel represents such Indemnitee and
the Assuming Party or its Affiliate; provided, that, if such Indemnitee notifies
the Assuming Party in writing that it elects to employ separate counsel in the
circumstances described in clause (ii) or (iii) above, the Assuming Party shall
not have the right to assume the defense thereof and such counsel shall be at
the expense of the Assuming Party to the extent such expenses otherwise
constitute Losses indemnifiable under Section 8.1 or Section 8.3 (as limited by
Section 8.4 and Section 8.5). Without the consent of the Indemnitees or, in the
circumstances described in clause (iii) above, the Assuming Party, such consent
not to be unreasonably withheld, the Assuming Party or Indemnitee, as
applicable, shall not consent to, and the Indemnitees or Assuming Party, as
applicable, shall not be required to agree to, the entry of any judgment or
enter into any settlement unless such judgment or settlement (A) includes as an
unconditional term thereof the giving of a release from all liability with
respect to such Claim by each claimant or plaintiff to each Indemnitee or
Assuming Party, as applicable, that is the subject of such third-party Claim,
(B) does not include a statement as to or an admission of fault, culpability or
a failure to act, by or on behalf of an Indemnitee or Assuming Party, as
applicable and (C) in the case of any Claim regarding Taxes, such judgment or
settlement does not and will not, in the reasonable determination of Purchaser,
give rise or result in any increase in any Tax liability of Purchaser or any of
its Affiliates. In case of a judgment or settlement where the elements of
clauses (A), (B) and (C) are satisfied, the Assuming Party or Indemnitee, as
applicable, may consent, and Indemnitees or Assuming Party, as applicable, will
be required to agree to, the entry of such judgment or settlement in respect of
such Claim. If an Indemnification Notice is given to an Assuming Party and the
Assuming Party does not, within thirty (30) days after the Indemnification
Notice is given, give notice to the Indemnitee of its election to assume the
defense of such Claim, the Assuming Party will be bound by any determination
made in such Claim or any compromise or settlement effected by the Indemnitee.
The Indemnitee and the Assuming Party will make available to each other and each
other’s attorneys and representatives at all reasonable times, all books and
records relating to such Claim and will render to each other such assistance as
may reasonably be requested to ensure proper and adequate defense of any such
Claim.

 

 

 

 

 52 

 

Section 8.7 Determination of Losses. Losses with respect to any Permitted
Indemnification Claim shall be determined without regard to any materiality or
Material Adverse Effect qualification set forth in any representation, warranty
or covenant. To the maximum extent allowed by Law, all indemnification payments
under this Agreement will be treated by the parties as an adjustment to the
Purchase Price.

 

Section 8.8 Right of Set-Off.

 

(a)       Set-Off. To the extent that a Purchaser Indemnitee has made a claim
for indemnification, it is expressly agreed by the Parties that Purchaser may
deduct and set-off the aggregate estimated amount of all such Losses with
respect to such claim for indemnification from the Holdback Amount (for claims
asserted prior to the Holdback Release Date), any Adjustment Amount, or any
Earn-Out Payment and subject to resolution of such claim pursuant to the
procedures set forth in this Article VIII. The exercise of such right of set-off
by Purchaser in good faith, whether or not ultimately determined to be
justified, will not constitute a breach of this Agreement. Neither the exercise
of nor the failure to exercise such right of set-off will constitute an election
of remedies or limit the Purchaser Indemnitees in any manner in the enforcement
of any other remedies that may be available to them.

 

(b)       Distribution of Indemnity Holdback Amount. Pursuant to the terms of
this Agreement, the Holdback Amount shall be released to the Shareholders’
Representative (or one or more account(s) designated thereby) on the Holdback
Release Date, minus any amounts released from the Holdback Amount to satisfy
resolved Claims for indemnification made by a Purchaser Indemnitee; provided,
however, if any Purchaser Indemnitee have made claims against the Shareholders
prior to any such scheduled release, then the disputed amount of the Holdback
Amount (plus accrued interest) will be held by the until resolution in full of
such claims.

 

 

 

 

 53 

 

(c)       Distribution of Specific Claim Amounts. Amounts remaining in the
Holdback Amount attributable to any claims made prior to the Holdback Release
Date shall be distributed upon the resolution of such claims in the manner
determined pursuant to such resolution, in each case, subject to reduction as a
result of claims made against the Holdback Amount prior to the Holdback Release
Date and for any amounts necessary, in the reasonable judgment of Purchaser, to
satisfy all unresolved claims as of such applicable distribution date, which
amounts shall continue to be held by the Purchaser until final resolutions of
such unresolved claims.

 

Article IX
MISCELLANEOUS PROVISIONS

 

Section 9.1 Amendment and Modifications. This Agreement may be amended, modified
and supplemented only by written agreement between Purchaser, the Company and
the Shareholders which states that it is intended to be a modification of this
Agreement; provided that following the Closing, the Agreement may only be
amended by the written agreement of Purchaser and the Shareholders.

 

Section 9.2 Waiver of Compliance. Any failure of the Company, or the
Shareholders to comply with any obligation, representation, warranty, covenant,
agreement or condition herein may be waived in writing by Purchaser, but such
waiver or failure to insist upon strict compliance with such obligation,
representation, warranty, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other failure. Any
failure of Purchaser to comply with any obligation, representation, warranty,
covenant, agreement or condition herein may be waived in writing prior to the
Closing by the Company and after the Closing by the Shareholders’
Representative, but such waiver or failure to insist upon strict compliance with
such obligation, representation, warranty, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure and the waiver of any condition to Closing related to a breach of
any party’s representation, warranty, or covenant shall not relieve the party of
any liability therefor.

 

Section 9.3 Expenses. Except as set forth in Section 7.2, the parties agree that
all fees and expenses incurred by them in connection with this Agreement and the
Contemplated Transactions shall be borne by the party incurring such fees and
expenses, including, without limitation, all fees of counsel, actuaries, brokers
and accountants; provided however that Transaction Expenses, to the extent not
deducted from the Purchase Price in accordance with Section 1.2, shall be paid
by the Shareholders on or prior to Closing.

 

Section 9.4 Waiver. To the maximum extent permitted by Law, all rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available under applicable Law. No failure on
the part of any party to exercise or delay in exercising any right hereunder
shall be deemed a waiver thereof, nor shall any single or partial exercise
preclude any further or other exercise of such or any other right.

 

 

 

 

 54 

 

Section 9.5 Dispute Resolution.

 

(a)       Negotiated Resolution. Except to the extent a different procedure is
expressly provided for herein, if any dispute arises (i) out of or relating to,
this Agreement, or any alleged breach hereof, or (ii) with respect to any of the
Contemplated Transactions (“Dispute”), the party desiring to resolve such
Dispute shall deliver a written notice describing such Dispute with reasonable
specificity to the other parties (“Dispute Notice”). If any party delivers a
Dispute Notice pursuant to this Section 9.5, or if Purchaser or the
Shareholders’ Representative delivers to the other an Indemnification Objection
Notice pursuant to Section 8.6, the parties involved in the Dispute shall meet
at least twice within the thirty (30) day period commencing with the date of the
Dispute Notice or the Indemnification Objection Notice (as the case may be) and
in good faith shall attempt to resolve such Dispute (as the case may be).

 

(b)       Arbitration. If the Dispute or indemnification claim is not resolved
pursuant to Section 9.5(a) above, the Dispute or indemnification claim shall be
settled by arbitration conducted in Los Angeles, California, or such other place
as mutually agreed to by the parties, which shall be in accordance with the then
effective Comprehensive Arbitration Rules of JAMS. The arbitration of such
issues, including the determination of any amount of damages suffered by any
party hereto by reason of the acts or omissions of any party, shall be final and
binding upon all parties. Judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction. The arbitrator shall have the
authority to award any remedy or relief that a court in the State of Delaware
could order or grant, including specific performance of any obligation created
under this Agreement, the issuance of an injunction or other provisional relief,
or the imposition of sanctions for abuse or frustration of the arbitration
process. The arbitrator shall apply the Law of the State of Delaware in deciding
the merits of any Dispute. The arbitrator shall provide a written and reasoned
explanation for any award rendered in the arbitration. By agreeing to
arbitration, the parties do not intend to deprive any court of its jurisdiction
to issue a pre-arbitral injunction, pre-arbitral attachment, or other order in
aid of arbitration proceedings and the enforcement of any award. Except as
otherwise set forth in this Agreement, the cost of any arbitration hereunder,
including the cost of the record or transcripts thereof, if any, administrative
fees, and all other fees involved including reasonable attorneys’ fees incurred
by the party determined by the arbitrator to be the prevailing party, shall be
paid by the party determined by the arbitrator not to be the prevailing party,
or otherwise allocated in an equitable manner as determined by the arbitrator.

 

Section 9.6 Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be delivered by
hand, mailed, certified or registered mail with postage prepaid, or sent by
reputable overnight courier to the parties at the address set forth below or to
such other address as may be furnished in writing to the other parties hereto.
All such notices and communications shall be deemed to have been duly given
three (3) Business Days after being deposited in the mail, postage prepaid, if
mailed; one (1) Business Day after being sent by reputable overnight courier.

 

 

 

 55 

 

 

Purchaser:

Walter S. Woltosz

Chief Executive Officer

Simulations Plus, Inc.

42505 10th St W

Lancaster, CA 93534-7059

 

   

With a copy (which shall not

 

constitute notice) to:

 

Dennis J. Doucette, Esq.

Procopio, Cory, Hargreaves & Savitch, LLP

12544 High Bluff Drive, Suite 300

San Diego, CA 92130

 

or to such other Person or address as Purchaser shall furnish to the Company and
the Shareholders in writing.

 

Company (pre-Closing):

Brett A. Howell

6 Davis Drive, PO Box 12317

Research Triangle Park, NC 27709

 

    Shareholders’ Representative (on behalf of the Shareholders):

Brett A. Howell

6 Davis Drive, PO Box 12317

Research Triangle Park, NC 27709

 

   

With a copy (which shall not

 

constitute notice) to:

 

Amalie L. Tuffin

Hutchison PLLC

3110 Edwards Mill Road, Suite 300

Raleigh, NC 27612

 

or to such other Person or address as the Company or the Shareholders’
Representative shall furnish to Purchaser in writing (with any notice to the
Shareholders’ Representative to be deemed adequate notice to all Shareholders).

 

Section 9.7 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other party; provided, that, Purchaser may assign
this Agreement to an Affiliate of Purchaser provided that such assignment shall
not relieve Purchaser of liability hereunder.

 

Section 9.8 Publicity. Neither the Company nor the Shareholders nor Purchaser
shall make or issue, or cause to be made or issued, any announcement or written
statement concerning this Agreement or the Contemplated Transactions for
dissemination to the general public without the prior consent of the other
party, and no such announcement or written statement shall disclose the amount
or composition of the Purchase Price. This provision shall not apply, however,
to any announcement or written statement required (upon the advice of legal
counsel) to be made by Law or the regulations of any Governmental Authority, or
any exchange upon which the securities of either party may be listed, except
that the party required to make such announcement, whenever practicable, shall
consult with the other party concerning the timing and content of such
announcement before such announcement is made.

 

 

 

 

 56 

 

Section 9.9 Governing Law. This Agreement and the legal relationship among the
parties hereto shall be governed and construed under the internal laws of the
State of Delaware without regards to its conflict of laws principles.

 

Section 9.10 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Signature by
telecopy shall be sufficient to evidence a party’s intention to be bound hereby.

 

Section 9.11 Headings. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.

 

Section 9.12 Incorporation of NDA. The terms of the NDA shall continue in full
force and effect in all respects. If this Agreement is, for any reason,
terminated prior to the Closing, the NDA shall nonetheless continue in full
force and effect in all respects without any modification thereto.
Notwithstanding the foregoing or any other provision of this Agreement, from and
after the Closing, the provisions of the NDA restricting Purchaser shall expire
and shall not apply to or restrict in any manner Purchaser’s or Company’s use of
any Confidential Information (as defined in the NDA) of the Company.

 

Section 9.13 Entire Agreement. This Agreement, including the exhibits and
schedules hereto, the Company Disclosure Schedule and the other documents and
certificates delivered pursuant to the terms hereof, and the NDA set forth the
final, complete and exclusive agreement and understanding of the parties hereto
in respect of the subject matter contained herein, and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether oral or written, by any officer, employee or
representative of any party hereto, including, without limitation, the Letter of
Intent dated October 20, 2016 between the Company, the Shareholders and
Purchaser.

 

Section 9.14 Assignments, Successors, and No Third-Party Rights. No party may
assign any of its rights under this Agreement without the prior consent of the
other parties hereto, except that Purchaser may assign any of its rights under
this Agreement to any Subsidiary or Affiliate of Purchaser or as collateral
security for any borrowings. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Except as set forth in Article
VIII, nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.

 

 

 

 

 57 

 

Section 9.15 Further Assurances. Each of the parties hereto agrees that from
time to time, at the request of any of the other parties hereto and without
further consideration, it will execute and deliver such other documents and take
such other action as such other party may reasonably request in order to
consummate more effectively the Contemplated Transactions. The parties shall
cooperate with each other in such actions and in securing requisite approvals.
Each party shall execute and deliver both before and after the Closing such
further certificates, agreements and other documents and take such other actions
as the other party reasonably may request to consummate or implement the
Contemplated Transactions or to evidence such events or matters.

 

Section 9.16 Representation by Counsel; Interpretation. The Company, on one
hand, and Purchaser, on the other hand, each acknowledge that such parties have
been represented by counsel in connection with this Agreement and the
Contemplated Transactions. Accordingly, any rule of Law or any legal decision
that would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and any such right is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of the parties hereto.

 

Section 9.17 Certain Definitions. For purposes of this Agreement, the term:

 

“Acquisition Proposal” means any proposal or offer made by any Person other than
parent or an Affiliate of Purchaser to acquire all or a substantial part of the
business or properties of the Company or any capital stock of the Company,
whether by Transaction, tender offer, exchange offer, sale of assets,
recapitalization or similar transactions involving the Company, division or
operating or principal business unit of the Company.

 

“Adjusted EBT” means, with respect to any time period, the earnings before
income taxes of the Company for such period, determined in accordance with GAAP,
as adjusted by (i) adding back all amortization and depreciation expenses
related to the Contemplated Transaction (minus an amount of $16,000), (ii)
deducting capitalized software cost and (iii) adding back amortized software
cost, all in accordance with GAAP and as set forth and determined in a manner
consistent with the methodology set forth on Schedule 1.11. Depreciation for
property, plant, equipment and computer equipment is to be included as a
deduction in the Adjusted EBT only to the extent it exceeds fifteen thousand
Dollars ($15,000) per year for each of the Earn-Out Years.

 

“Affiliate” means a Person that directly or indirectly, through one or more
intermediaries, controls, is Controlled by, or is under common Control with, the
first mentioned Person.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Audited Financial Statements” means the audited balance sheets of the Company
at December 31, 2015, the audited balance sheets of the Company at December 31,
2016, and the related statements of income, stockholders’ equity, and cash flows
for the years ended December 31, 2016, together with the notes and supplemental
information thereto and the report thereon of Dixon Hughes Goodman, LLP, as
delivered to Purchaser prior to the Closing Date and attached to Section 2.8(a)
of the Company Disclosure Schedule

 

 

 

 

 58 

 

“Business Day” means any day other than a day on which banks in Los Angeles,
California are required or authorized to be closed.

 

“COBRA” means Part 6 of Title I of ERISA and Code Section 4980B and the
regulations promulgated under any of them, as amended.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company Common Stock” means the common stock of Company.

 

“Company Data Site” means the electronic diligence data room website located at
Box.com established by the Company to produce diligence materials in connection
with the Contemplated Transactions.

 

“Contemplated Transactions” means all of the transactions contemplated by this
Agreement and the Transaction Documents.

 

“Consortium Agreements” means the Consortium Agreements entered into by Hamner
Institute, the Company (as itself and as an assignee of Hamner Institute’s
Consortium Agreements), and the following entities: (i) Astellas Pharma Inc.,
(ii) AbbVie, Inc., (iii) GlaxoSmithKline Research and Development Ltd, (iv)
Bristol-Myers Squibb Company, (v) Daiichi Sankyo, Company, Limited, (vi)
Mitsubishi Tanabe Pharma Corporation, (vii) Gilead Sciences, Inc., (viii) Eli
Lilly and Company, (ix) Janssen Research and Development, LLC, (x) Merck Sharp &
Dohme Corp., (xi) Pfizer Inc., and (xii) Takeda Pharmaceuticals International,
Inc.

 

“Control” (including the terms “Controlled by”, and “under common Control with”)
means the possession, directly or indirectly or as trustee or executor, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.

 

“Earn-Out Years” means (i) the twelve (12) month period commencing June 1, 2017
and ending May 31, 2018, (ii) the twelve (12) month period commencing June 1,
2018 and ending May 31, 2019, and (iii) the twelve (12) month period commencing
June 1, 2019 and ending May 31, 2020.

 

“Effective Time” means 11:59 p.m. San Diego City time on the day immediately
preceding the Closing Date.

 

“FIRPTA Certificates” means the non-foreign affidavits executed by each of the
Shareholders as of the Closing Date, sworn under penalty of perjury and in form
and substance required under the Treasury Regulations issued pursuant to Section
1445 of the Code stating that Company is not a “Foreign Person” as defined in
Section 1445 of the Code.

 

“GAAP” means accounting principles generally accepted in the United States.

 

 

 

 

 59 

 

“Government Agency” means (a) the United States Government, including all
departments and agencies of any branch of the United States Government, all
independent agencies or instrumentalities and all non-appropriated fund
activities within the United States Government and United States Government
corporations, and (b) any state, local or foreign government, including all
departments, agents, agencies, branches, independent agencies or
instrumentalities, activities, and non-appropriated fund activities of or within
a state, local or foreign government and all state, local or foreign government
corporations.

 

“Government Contract” means any prime contract, grant, research or collaboration
agreement, subcontract, purchase order, task order, delivery order, teaming
agreement, joint venture agreement, strategic alliance agreement, basic ordering
agreement, pricing agreement, letter contract or other similar arrangement of
any kind that is currently active in performance, has been active in performance
at any time in the five (5) year period prior to the Effective Time, or has not
been closed-out under the procedures of the Governmental Agency responsible for
administering the Government Contract as of the Effective Time, with (i) any
Governmental Agency, (ii) any prime contractor of a Governmental Agency in its
capacity as a prime contractor, or (iii) any subcontractor at any tier with
respect to any contract of a type described in clauses (i) or (ii) above. A
task, purchase or delivery order under a Government Contract shall not
constitute a separate Government Contract, for purposes of this definition, but
shall be part of the Government Contract to which it relates.

 

“Government Contract Proposal” shall mean any proposal, bid or quotation for
awards of new Government Contracts made by the Company or any of its
Subsidiaries for which no award has been made and any proposal, bid, request for
equitable adjustment, contract change proposal, proposal for modification or
indirect cost submission on any existing Government Contract.

 

“Governmental Authority” means any court, administrative or regulatory agency or
commission, Government Agency or other governmental authority of competent
jurisdiction.

 

“Governmental Authorization” means any approval, consent, license, permit,
registration, certificate, waiver or other authorization issued, granted, given,
or otherwise made available by or under the authority of any Governmental
Authority or pursuant to any Law.

 

“Hamner Institute” means The Hamner Institutes of Health Sciences.

 

“Holdback Release Date” means the date that is eighteen (18) months following
the Closing Date.

 

“Indebtedness” means with respect to any Person at any date, without
duplication: (a) all obligations of such Person for borrowed money or in respect
of loans or advances (other than customer prepayments or deposits characterized
as short term liabilities under GAAP); (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (c) all
obligations of such Person that are not characterized as short term liabilities
under GAAP; (d) all obligations in respect of letters of credit, whether or not
drawn, and bankers’ acceptances issued for the account of such Person; (e) all
capitalized lease liabilities of such Person; (f) all interest rate protection
agreements of such Person (valued on a market quotation basis); (g) all
obligations of such Person secured by a contractual lien; (h) all guarantees of
such Person in connection with any of the foregoing; (i) any debt-like
obligation or financing-type arrangement in respect of the deferred purchase
price of property or property received as of the Closing with respect to which
such Person is liable, contingently or otherwise, as obligor or otherwise;
(j) all earn-out obligations of such Person; and (k) any accrued interest,
prepayment premiums or penalties or other costs or expenses related to any of
the foregoing.

 

 

 

 

 60 

 

“Independent Firm” means Grant Thornton LLP or, if it is unable or unwilling to
serve, another nationally recognized accounting firm mutually acceptable to
Purchaser and the Shareholders’ Representative.

 

“Intellectual Property Rights” means any and all United States and foreign
(a) patents and patent applications (including without limitation docketed
patent disclosures awaiting filing, reissues, divisions, continuations,
continuations-in-part and extensions), patent disclosures awaiting filing
determination, inventions and improvements thereto, (b) trademarks, service
marks, certification marks, trade name rights, trade dress, logos, business and
product names, slogans, and registrations and applications for registration
thereof, (c) copyrights (statutory or otherwise) and registrations thereof,
(d) inventions, processes, designs, formulae, trade secret rights, know-how,
industrial models, confidential, technical and business information,
manufacturing, engineering and technical drawings, and product specifications,
(e) intellectual property rights similar to any of the foregoing, (f) computer
software, and (g) copies and tangible embodiments thereof (in whatever form or
medium, including without limitation electronic media).

 

“Interim Balance Sheet” means the unaudited balance sheet of the Company dated
as of the Interim Balance Sheet Date.

 

“Interim Balance Sheet Date” means December 31, 2016.

 

“JAMS” JAMS Arbitration, Mediation and ADR Services.

 

“Knowledge” or “Company’s Knowledge” means the knowledge of any of the officers,
directors or shareholders of the Company, including the Shareholders, after
making due inquiry of all officers and other employees charged with
administrative or operational responsibility of such matters, or that an
ordinary and prudent business Person employed in the same capacity in the same
type and size of business as such individual would reasonably be expected to
have knowledge of such fact or other matter.

 

“Law” or “Laws” means any law, statute, code, ordinance, regulation, rule or
other binding obligation or requirement of any Governmental Agency or
Governmental Authority.

 

“Licensed Intellectual Property” means Intellectual Property Rights licensed to
the Company or which the Company has the right to use, including Off-the-Shelf
Software.

 

“Liens” means any charge, Claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, easement, deed of trust, mortgage, right-of-way, encroachment,
conditional sales agreement, or any other right or adverse claim of any third
party of any nature whatsoever, whether voluntarily incurred or arising by
operation of Law, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership, and including, without limitation, any Contract to give any of the
foregoing in the future; the term “Lien” does not include statutory liens for
Taxes not yet due and payable.

 

 

 

 

 61 

 

“Losses” means (whether or not involving a third-party claim) any cost, loss,
liability, obligation, damage (including incidental, special, punitive and
consequential damages), expense, loss of profit or diminution in value,
interest, penalties, compliance costs, costs of mitigation, reasonable
attorney’s fees and amounts paid in investigation, defense or settlement of any
of the foregoing.

 

“Material Adverse Effect.” When used in connection with the Company, or
Purchaser or any of its subsidiaries, as the case may be, the term “Material
Adverse Effect” means any change, effect or circumstance that is materially
adverse to the business, assets, condition (financial or otherwise) or results
of operations of the Company, or Purchaser and its subsidiaries, as the case may
be, in each case taken as a whole.

 

“Majority Shareholders” means the following Shareholders: (i) Brett Howell; (ii)
Lisl Shoda; (iii) Scottington Siler; (iv) Paul Watkins; and (v) Jeffrey
Woodhead.

 

“NDA” means that certain Confidentiality and Nondisclosure Agreement dated
September 12, 2016 between Purchaser and the Company.

 

“Net Working Capital” means the difference between: (a) the sum of the Company’s
tangible current assets determined under GAAP (including, for purposes of
clarity, cash, accounts receivable and prepaid items determined under GAAP); and
(b) the sum of the Company’s current liabilities determined under GAAP,
including but not limited to, accounts payable, deferred revenue (current),
accrued expenses, bonus accruals, balance sheet adjustments, lease obligation
(current) and accrual for tax liability, provided that “Net Working Capital”
shall (x) include at least Five Hundred Thousand Dollars ($500,000) of cash, and
(y) exclude deferred tax assets and liabilities.

 

“Off-the-Shelf Software” means unmodified, generally available, commercial,
off-the-shelf software or other non-material shrink wrap or downloadable
software or software as a service software available to Purchaser on
nondiscriminatory terms and conditions used in the operation of the business of
the Company.

 

“Order” means any order, judgment, ruling, injunction, assessment, award,
decree, writ or other binding decision of any Governmental Authority or
Government Agency.

 

“Person” means an individual, corporation, partnership, limited liability
company, association, joint venture, trust, unincorporated organization, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act);

 

 

 

 

 62 

 

“Pro Rata Portion” means with respect to each Shareholder, the percentage
obtained by dividing (a) the number of shares of Company Common Stock owned by
such Shareholder immediately prior to the Effective Time, by (b) the number of
Purchased Shares.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Subsidiary” means, with respect to any Person, any corporation of which a
majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person or a combination thereof, or any partnership, association or other
business entity of which a majority of the partnership or other similar
ownership interest is at the time owned or controlled, directly or indirectly,
by such Person or one or more Subsidiaries of such Person or a combination
thereof. For purposes of this definition, a Person is deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person is allocated a majority of the gains or losses of such partnership,
association or other business entity or is or controls the managing director or
general partner of such partnership, association or other business entity.

 

“Target Net Working Capital” means Two Hundred Fifty Thousand Dollars
($250,000).

 

“Tax” or “Taxes” means (a) any federal, state, local, or foreign income, gross
receipts, gross margin, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar excises), unemployment, disability, ad valorem, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not,
by any Governmental Authority responsible for imposition of any such tax
(domestic or foreign), (b) in the case of the Company, liability for the payment
of any amount of the type described in clause (a) as a result of being or having
been on or before the Closing Date a member of an affiliated, consolidated,
combined or unitary group, or a party to any agreement or arrangement, as a
result of which liability of the Company to a Governmental Authority is
determined or taken into account with reference to the liability of any other
Person, and (c) liability of the Company for the payment of any amount as a
result of being party to any Tax Sharing Agreement or with respect to the
payment of any amount of the type described in (a) or (b) as a result of any
existing express or implied obligation (including an indemnification
obligation).

 

“Tax Return” means any return, declaration, disclosure, election, schedule,
estimate, report, claim for refund, estimates or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.

 

“Tax Sharing Agreement” means all existing agreements or arrangements (whether
or not written) binding the Company that provide for the allocation,
apportionment, sharing or assignment of any Tax liability or benefit, or the
transfer or assignment of income, revenues, receipts or gains for the principal
purpose of determining any Person’s Tax liability.

 

 

 

 

 63 

 

“Termination Liability” means all Losses incurred by Purchaser or the Company as
a result of the assignment or termination of employees or consultants of the
Company at Closing with respect to periods on or prior to the Closing Date,
including severance, outplacement, vacation pay, salary, commissions and
benefits for periods prior to the Closing Date, claims of wrongful termination,
age, race or sex discrimination or the like, liability under WARN, COBRA and
state benefits continuation Laws, and any Taxes or penalties payable with
respect to any of the foregoing payments or liabilities.

 

“Transaction Documents” means this Agreement, the Shareholder Release, the
Non-Competition Agreement and other each agreement, document, instrument or
certificate contemplated by this Agreement or to be executed by Purchaser, the
Company or the Shareholders in connection with the consummation of the
Contemplated Transactions, in each case only as applicable to the relevant party
or parties to such Transaction Documents, as indicated by the context in which
such term is used.

 

“Transaction Expenses” means, solely to the extent not paid prior to Closing,
(a) the aggregate amount of all fees and expenses incurred by the Shareholders
at any time, or the Company prior to the Closing, regardless of when payable
(including the fees and expenses of any legal counsel, accountant, auditor,
broker, financial advisor or consultant retained by or on behalf of the
Shareholder or the Company), arising from, relating to or in connection with
this Agreement, the Transaction Documents and/or the Contemplated Transactions,
it being understood and agreed that all fees and expenses of Dixon Hughes
Goodman, LLP related to the Company’s 2016 audit shall be deemed Transaction
Expenses for purposes of this Agreement, and (b) any other fees and expenses of
the Company and/or the Shareholders to be paid at Closing as set forth in the
Transaction Expense Schedule.

 

“WARN” means the Worker Adjustment and Retraining Notification Act of 1988, as
amended, and each similar state, local or foreign Law or regulation.

 

Section 9.18 Rules of Construction. This Agreement shall be construed in
accordance with the following rules of construction:

 

(a)       the terms defined in this Agreement include the plural as well as the
singular;

 

(b)       all references in the Agreement to designated “Articles,” “Sections”
and other subdivisions are to the designated articles, sections and other
subdivisions of the body of this Agreement;

 

(c)       pronouns of either gender or neuter shall include, as appropriate, the
other pronoun forms;

 

(d)       the words “herein,” “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;

 

(e)       the words “includes” and “including” are not limiting;

 

 

 

 

 64 

 

(f)       all references to days shall be deemed to refer to calendar days
unless this Agreement specifically refers to Business Days;

 

(g)       the terms “made available,” “delivered” and “provided to” when used in
reference to the Company and/or the Shareholders’ Representative having made or
making items or information available to, or to having provided information to,
Purchaser or Transaction Sub, shall mean that such items or information were
(i) posted prior to the date hereof to the Company Data Site including the
secured folders located therein; and

 

(h)       reference to any Law means as amended, modified, codified, replaced or
re-enacted, in whole or in part, and in effect on the date hereof, including
rules, regulations, enforcement procedures and any interpretations promulgated
thereunder.

 

[SIGNATURES BEGIN ON FOLLOWING PAGE]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 65 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement
to be duly executed as of the day and year first above written.

 

SIMULATIONS PLUS, INC.

 

 

By: /s/ Walter S. Woltosz

Walter S. Woltosz, Chairman & CEO

 

 

DILISYM SERVICES, INC.

 

 

By: /s/ Brett A. Howell

Brett A. Howell, CEO

 

 

SHAREHOLDERS:      

/s/ Brett A. Howell

Brett A. Howell

/s/ Bud M. Nelson

Bud M. Nelson

   

/s/ Grant Generaux

Grant Generaux

/s/ Lisl Shoda

Lisl Shoda

   

/s/ Diane Longo

Diane Longo

/s/ Scottington Siler

Scottington Siler

   

Paul Watkins

Paul Watkins

/s/ Jeffrey Woodhead

Jeffrey Woodhead

           

SHAREHOLDERS REPRESENTATIVE:

 

/s/ Brett A. Howell

Brett A. Howell

 

 

 

 66 

 

 

COMPANY DISCLOSURE SCHEDULE

[TO FOLLOW]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

EXHIBIT A

 

FORM OF NON-COMPETITION AGREEMENT

 

[ATTACHED]

 

 

 

 

 

 

 

 

 

 

   

 

 

NON-COMPETITION AGREEMENT

 

This Non-Competition Agreement (this “Agreement”) is dated June 1, 2017 (the
“Closing Date”), by and among (i) Simulations Plus, Inc., a California
corporation (“Purchaser”), and (ii) the shareholders of DILIsym Services, Inc.,
a North Carolina corporation (the “Company”) listed on the signature pages
hereto (together the “Shareholders”, and each a “Shareholder”). Each of the
foregoing parties shall be referred to separately herein as a “Party” and
together as the “Parties”.

 

RECITALS

 

WHEREAS, pursuant to the terms and subject to the conditions set forth in that
certain Stock Purchase Agreement dated May 1, 2017 (the “Purchase Agreement”)
among the Company, Purchaser, the Shareholders, and Brett A. Howell as the
Shareholders’ Representative, Purchaser shall acquire all of the Company’s
outstanding capital stock from the Shareholders (the “Transaction”);

 

WHEREAS, the Shareholders are shareholders of the Company and are selling all of
their equity interests in the Company;

 

WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement and
to protect adequately its interests, it is essential that the Shareholders have
agreed to enter into this Agreement in consideration of the transactions
contemplated by, and pursuant to Section 6.2(f) of the Purchase Agreement;

 

WHEREAS, this Agreement is integral to the transactions contemplated by the
Purchase Agreement, and it is acknowledged and agreed that the Purchaser would
not consummate such transactions (or pay the consideration specified in the
Purchase Agreement) absent the Shareholders’ execution and delivery of this
Agreement, and this Agreement being in full force and effect and valid, binding
and enforceable against the Shareholders as of the Closing Date and thereafter,
as set forth below;

 

WHEREAS, for the avoidance of doubt, (i) the Shareholders are not entering into
this Agreement in his or her capacity as an employee of the Company, and (ii)
each of the Shareholders enter into this Agreement in connection with, and
ancillary to, the sale of the Company; and

 

WHEREAS, the Parties acknowledge and agree that the restrictive covenants below
shall be construed in the sale of business context, including, but not limited
to, the Prohibited Activities covenant set forth in Section 4 below.

 

NOW, THEREFORE, in consideration of the premises set forth herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereto agree as follows:

 

 

 A-1 

 

 

AGREEMENT

 

1.       Definitions. Capitalized terms not expressly defined in this Agreement
shall have the meanings ascribed to them in the Purchase Agreement.

 

(a)       The term “Confidential Information” means all of the confidential and
proprietary information of the Company and its Affiliates existing as of the
date hereof and/or hereafter acquired by the Purchaser pursuant to the
Transaction, including all information and compilations of information of any
kind, type or nature (tangible and intangible, written or oral, and including
information contained, stored or transmitted through any electronic medium)
relating to the financial conditions, results of operations, business,
properties, assets, liabilities or future prospects of the Company, special
arrangements regarding the pricing and purchase of products or services
including proprietary methods, cost information, customer and potential customer
lists and contact information, pricing and volume by customer, customer
preferences, supplier information, agency and contractor relationships and
contact information, sales and profit information, goodwill, any other Trade
Secrets, including information concerning services and products, developments,
techniques, processes, formulae, know-how, systems, new service, product and
marketing plans, inventions, discoveries, patent applications, ideas, designs,
drawings, test data, computer programs, software (including object code and
source code), databases, technologies, systems, structures and architectures,
methods, research, procurement and sales activities and procedures, promotion
and pricing techniques and credit and financial data concerning customers and
potential customers of the Company as well as information relating to the
management operation or planning of the business of the Company, and technical
proprietary information and any other intangible assets whether communicated
orally, electronically, in writing or in any other tangible media.
Notwithstanding the foregoing, Confidential Information shall not include, and
nondisclosure and nonuse obligations under this Agreement shall not apply to,
information that is generally available to the public in the ordinary course of
business of the Company.

 

(b)       The term “Trade Secrets” means all of the information of the Company
existing as of the date hereof and/or hereafter acquired by the Company or the
Purchaser pursuant to the Transaction, and information of the licensors,
suppliers, clients, vendors, and customers of Company, without regard to form,
including, but not limited to, technical or nontechnical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, a list of actual
customers, clients, licensors, or suppliers, or a list of potential customers,
clients, licensors, or suppliers, and which such information (i) derives
independent economic value, actual or potential, from not being generally known
to the public or to other persons who can obtain economic value from its
disclosure or use; and (ii) is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy.

 

 

 

 A-2 

 

 

2.       Acknowledgments and Representations by Shareholders.

 

(a)       Acknowledgments. Shareholders acknowledge that:

 

(i)       the Purchaser has required that Shareholders make the covenants set
forth in Sections 3 and 4 of this Agreement as a condition to the consummation
of the transactions contemplated by the Purchase Agreement;

 

(ii)       but for the provision of the covenants set forth herein, Purchaser
would not acquire all of the capital stock of the Company;

 

(iii)       the covenants contained herein are an integral, and not severable,
material component of the basis of the consideration being paid by Purchaser
which consideration would not have been agreed to by Purchaser but for the
existence and enforceability of this Agreement;

 

(iv)       each Shareholder had the opportunity to be represented by counsel of
his or her choice and based upon the advice of such counsel, if any, and other
advisers, Shareholders have knowingly and willingly agreed to enter into and
agree to the enforcement of this Agreement and the covenants herein contained;

 

(v)       the transactions contemplated by the Purchase Agreement and payment of
the Purchase Price directly benefit the Shareholders and constitute sufficient
consideration for the Shareholders to enter into this Agreement;

 

(vi)       the provisions of this Agreement are necessary to protect the
goodwill and the business of the Company (all of which are being acquired by
Purchaser) and that this Agreement and the covenants herein are necessary and
reasonable in duration, scope and geographic territory to protect such business
following the Transaction;

 

(vii)       prior to the Transaction, the Shareholders occupied a position of
trust and confidence with the Company and have had access to and have become
familiar with the Confidential Information and the Trade Secrets, all of which
are being acquired by Purchaser; and

 

(viii)       Purchaser and the Company would be irreparably damaged if any
Shareholder were to breach the covenants set forth in Sections 3 or 4 of this
Agreement.

 

(b)       Representations. Shareholders represent and warrant (on which
representation and warranty each Shareholder expressly acknowledges Purchaser is
relying in determining the appropriate geographic area for purposes of the
restrictive covenants herein set forth) that the Company currently carries on
its business, and sells and offers for sale its products and/or services, in (i)
the State of North Carolina, (ii) states bordering North Carolina, (iii) states
east of the Mississippi River, and (iv) the United States of America, (the
“Restricted Territory”):

 

 

 

 

 A-3 

 

3.       Nondisclosure and Nonuse of Confidential Information and Trade Secrets.

 

(a)       Each of the Shareholders acknowledges and agrees that the Confidential
Information and the Trade Secrets were the property of the Company prior to the
Closing, and shall remain the property of the Company immediately following the
Closing. None of the Shareholders shall do anything inconsistent with the
ownership of the Confidential Information and the Trade Secrets by the Company
and Purchaser. From and after the date of this Agreement, each of the
Shareholders agrees that he or she will not, and will not permit any party
acting on behalf of, in conjunction or association with, or at the direction of
such Shareholder, at any time, disclose to any unauthorized Persons or use for
his or her own account or for the benefit of any third Person, any Confidential
Information or the Trade Secrets, whether such Shareholder has such information
in his or her memory or embodied in writing or other physical or tangible form
or media, without Purchaser’s and the Company’s express written consent, which
may be withheld in the Purchaser’s and the Company’s sole discretion, unless (a)
such Confidential Information and the Trade Secrets enters the public domain
subsequent to the date hereof through no fault of a Shareholder and through no
breach of confidentiality to Purchaser or the Company; or (b) the communication
of such Confidential Information and the Trade Secrets is in response to a valid
order by a Governmental Authority or is otherwise required by any applicable
Law; provided, however, in the event that any Shareholder is legally compelled
to disclose any of the Confidential Information and the Trade Secrets,
Shareholder shall provide the Purchaser and the Company with immediate written
notice of such requirement so that the Purchaser and the Company may seek a
protective order or other appropriate remedy or waive compliance with this
Section 3. If, failing the entry of a protective order, such Shareholder is, in
the opinion of his or her counsel, compelled to disclose any Confidential
Information and the Trade Secrets, he or she may disclose only that portion of
the Confidential Information and the Trade Secrets that his or her counsel
advises is compelled to be disclosed by Law and such Shareholders will exercise
reasonable efforts to obtain assurance that confidential treatment will be
accorded to that portion of the Confidential Information and the Trade Secrets
that is being disclosed. In any event, no Shareholder will oppose action by the
Purchaser or the Company to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Information and the Trade Secrets. Each Shareholder agrees to use commercially
reasonable efforts, upon request from time to time, to locate and provide to the
Purchaser and the Company such specific items of Confidential Information and
the Trade Secrets that may be reasonably requested by the Purchaser or the
Company from time to time, whether embodied in electronic, hard copy or any
other form, that Shareholders may then possess or have under a Shareholder’s
control.

 

(b)       The obligations under this Agreement shall: (i) with regard to the
Trade Secrets, remain in effect as long as the information constitutes a trade
secret under applicable Law; and (ii) with regard to the Confidential
Information, remain in effect for so long as such information constitutes
Confidential Information as defined in this Agreement.

 

(c)       The confidentiality, property, and proprietary rights protections
available in this Agreement are in addition to, and not exclusive of, any and
all other rights to which the Purchaser is entitled under applicable federal and
state law, including, but not limited to, rights provided under copyright laws,
trade secret and confidential information laws, and laws concerning fiduciary
duties.

 

 

 

 

 A-4 

 

4.       Prohibited Activities. As an inducement for Purchaser to consummate the
transactions contemplated in the Purchase Agreement, each of the Shareholders,
to the extent provided in this Agreement, agrees with respect to his or herself
that:

 

(a)       For a period of four (4) years after the Closing Date (the “Restricted
Term”):

 

(i)       Each of the Shareholders will not, and will not permit any party
acting on behalf of, in conjunction or association with, or at the direction of
such Shareholder to, directly or indirectly, in any market area in the
Restricted Territory, engage or invest in, own, manage, operate, develop,
consult, finance, control or participate in any manner in the ownership,
management, operation, financing or control of, or lend money or credit to any
business whose products, services or activities compete, directly or indirectly,
with the Company as of the Closing Date, including, but not limited to, the
business of Purchaser and its Subsidiaries (collectively, the “Business”);
provided, however, that any Shareholder may purchase or otherwise acquire up to
(but not more than) one percent (1%) of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934, as amended, provided, further, that no Shareholder, in any way,
participates, either directly or indirectly, in the management, operation or
other activities of such enterprise, whether as a consultant, employee, officer,
director, advisor, board member or otherwise. Notwithstanding, this subsection
4(a)(i) shall not prevent any Shareholder from having such a position with, or
providing services to, a business described above if such position and services
are in no way similar to the position Shareholder previously held with, or the
services previously provided to, the Company, and further that such position and
such services do not assist the business in competing with the Company.

 

(ii)       Each of the Shareholders will not, and will not permit any party
acting on behalf of, in conjunction or association with, or at the direction of
such Shareholder to, directly or indirectly, either for themselves or any other
Person, (a) induce or attempt to induce any employee, independent contractor, or
other Persons providing services to the Company prior to the Closing to leave
the employ of the Company or its Affiliates or to cease providing services to
the Company or its Affiliates (including Purchaser), (b) in any way interfere
with the relationship between the Company or its Affiliates (including
Purchaser) and any employee or independent contractor of the Company or its
Affiliates prior to the Closing or any other Person providing services to the
Company or its Affiliates prior to the Closing, (c) employ or otherwise engage
or hire (including participating in the interviewing, selecting, recruiting,
screening, hiring, training or on-boarding) as an employee, independent
contractor or otherwise, any employee or independent contractor of the Company
or its Affiliates or any Person who has been such an employee or independent
contractor of the Company or its Affiliates within the six (6) months preceding
the Closing Date, or (d) induce or attempt to induce any customer, supplier,
licensee or business relation of the Company or its Affiliates prior to the
Closing to cease doing business with the Company or its Affiliates (including
the Purchaser) or in any way interfere with the relationship between any
customer, supplier, licensee or business relation of the Company or its
Affiliates prior to the Closing and the Purchaser or its Affiliates.

 

(iii)       Each of the Shareholders will not, and will not permit any party
acting on behalf of, in conjunction or association with, or at the direction of
such Shareholder to, directly or indirectly, either for themselves or any other
Person, solicit the business of, or contact or engage in business with, any
Person known to such Shareholder to be a customer of the Company within the one
year period prior to the Closing or included on any customer list of the Company
or its Affiliates as of the Closing with respect to services or products that
compete in any respect with the Business of the Company or any of its Affiliates
prior to the Closing.

 

 

 

 

 A-5 

 

(iv)        Each Shareholder agrees that the restrictions set forth above are
ancillary to or part of otherwise enforceable agreements, are supported by
independent valuable consideration, and that the limitations as to time,
geographical area, and scope of activity to be restrained by this Section 4 are
reasonable and acceptable in all respects, do not impose any greater restraint
than is reasonably necessary to protect the goodwill and other business
interests of the Company acquired by the Purchaser in the Transaction, and are
more than adequately paid for in the significant consideration derived by the
Shareholders under the Purchase Agreement. Each Shareholder ratifies the
restrictions set forth in this Section 4, agrees not to challenge, and covenants
not to sue the Company or Purchaser regarding, the enforceability of the
covenants stated herein.

 

(b)       The Parties agree that, if for any reason a court disagrees with the
agreements and the acknowledgements of the Parties in this Agreement, the court
will have jurisdiction to modify any of the covenants of this Section 4 in
accordance with the respective court’s ruling as to reasonableness or scope of
application and that, consistent with Section 7 of this Agreement, this
Agreement shall remain enforceable and in force as modified or amended,
including the power to reduce or delete specific words and phrases by “blue
penciling” or otherwise and the reduced or blue penciled form of such provision
shall then be enforceable by law. In the event of a breach by any Shareholder of
any covenant set forth in Section 4(a) of this Agreement, the term of such
covenant will be extended by the period of the duration of such breach. Each of
the Shareholder’s obligations under this Section 4 shall survive the closing of
the transactions contemplated by the Purchase Agreement for the Restricted Term.

 

(c)       The covenants of the Shareholders contained in this Section 4 will be
construed as independent of any other provision in this Agreement, the Purchase
Agreement, or any Transaction Documents, and the existence of any claim or cause
of action by a Shareholder against the Purchaser or the Company will not
constitute a defense to the enforcement by the Company or Purchaser of such
covenants. Each Shareholder further agrees that notwithstanding any other
alleged breach of this Agreement, the provisions of this Section 4 will be valid
and binding upon each Shareholder.

 

5.       Nondisparagement. During the Restricted Term, each of the Shareholders
agrees that such Shareholder will not disparage or make negative statements (or
induce or encourage others to disparage or make negative statements) about the
Company, the Company’s products and/or services, Purchaser or any of their past
or present officers, directors, agents, employees, attorneys, successors and
assigns (as applicable), including, without limitation, criticizing such
Person’s business strategy. For the purposes of this Agreement, the term
“disparage” means any comments or statements, written or verbal, that are
derogatory or which would adversely affect in any manner: (i) the conduct of the
Purchaser’s or Company’s business; (ii) the business reputation or relationships
of the Purchaser or Company and/or any of either of their past or present
officers, directors, agents, employees, attorneys, successors and assigns (as
applicable); or (iii) the reputation or merchantability of any of the
Purchaser’s or Company’s products and/or services.

 

 

 

 A-6 

 

 

6.       Remedies. If any Shareholder breaches the covenants set forth in
Sections 3 or 4 of this Agreement, Purchaser and the Company will be entitled to
seek all of the following remedies:

 

(a)       Damages from such Shareholder;

 

(b)       Injunctive or other equitable relief with respect to such Shareholder
without posting bond to restrain any breach or threatened breach or otherwise to
specifically enforce the provisions of Sections 3 or 4 of this Agreement, it
being agreed that money damages alone would be inadequate to compensate
Purchaser and/or the Company and would be an inadequate remedy for such breach;
and/or

 

(c)       Any other rights Purchaser and/or the Company may have at law, in
equity or under contract with respect to such Shareholder.

 

The rights and remedies of the Parties to this Agreement are cumulative and not
alternative.

 

7.       Independent Enforcement. Each of the covenants set forth in Sections 3,
4 and 5 of this Agreement shall be construed as agreements independent of (a)
any other agreements, or (b) any other provision in this Agreement, and the
existence of any claim or cause of action by the Shareholders against the
Purchaser, whether predicated on this Agreement or otherwise, regardless of who
was at fault and regardless of any claims that either the Shareholders or the
Purchaser may have against the other, shall not constitute a defense to the
enforcement by the Purchaser of any of the covenants set forth in Sections 3, 4
and 5 of this Agreement. The Purchaser shall not be barred from enforcing any of
the restrictive covenants set forth in Sections 3, 4 and 5 of this Agreement by
reason of any breach of (i) any other part of this Agreement, or (ii) any other
agreement with the Shareholders.

 

8.       Severability. Whenever possible each provision and term of this
Agreement will be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited or invalid, then
such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Agreement. If any of the covenants set forth in Section 4 of
this Agreement are held to be unreasonable, arbitrary, against public policy or
otherwise unenforceable as written, such covenants will be considered divisible
with respect to time, geographic area, and scope of activity to be restrained
and in such lesser time, geographic area, and scope of activity to be restrained
will be effective, binding, enforceable and in force against Shareholders.

 

9.       Successors and Assigns. This Agreement will be binding upon Purchaser
and the Shareholders and will inure to the benefit of Purchaser, the Company and
the Shareholders and their respective successors and assigns. This Agreement may
be assigned by the Purchaser to (i) its Affiliates, and (ii) its successors by
merger, consolidation, business combination, conversion or sale of all or
substantially all of the Purchaser’s assets, but may not be assigned by any of
the Shareholders.

 

 

 

 

 A-7 

 

10.       Waiver. Neither the failure nor any delay by any party in exercising
any right, power or privilege under this Agreement will operate as a waiver of
such right, power or privilege, and no single or partial exercise of any such
right, power or privilege will preclude any other or further exercise of such
right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable Laws, (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable, except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.

 

11.       Governing Law; Jurisdiction. This Agreement shall be construed and
enforced in accordance with the internal laws of the State of North Carolina
without regard to any conflicts or choice of law principles that would require
the application of the laws other than the internal laws of the State of North
Carolina. The parties (a) hereby irrevocably submit to the jurisdiction of the
state courts of North Carolina, and to the jurisdiction of the United States
District Court for the Eastern District of North Carolina, for the purpose of
any suit, action or other proceeding arising out of or based upon this Agreement
or any document collateral hereto or the subject matter hereof or thereof
brought by any party or their respective successors or assigns and (b) hereby
waive, and agree not to assert, by way of motion, as a defense or otherwise, in
any such suit, action or proceeding, any claim that it is not subject personally
to the jurisdiction of the above-named courts, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper, or that this Agreement or any document
collateral thereto or the subject matter hereof or thereof may not be enforced
in or by such court, and (c) hereby waive and agree not to seek any review of
the decision of a North Carolina state or federal court by any court of any
other jurisdiction that may be called upon to grant enforcement of the judgment
of any such North Carolina state or federal court. Notwithstanding, Purchaser
and the Company may seek injunctive relief (as described in Subsection 6(b)) in
any other appropriate venue.

 

12.       Entire Agreement. This Agreement, the Purchase Agreement and any
ancillary agreements or related agreements thereto constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior written and oral agreements and understandings
between Purchaser, the Company and Shareholders with respect to the subject
matter of this Agreement. This Agreement may not be amended, except by a written
agreement executed by the party to be charged with the amendment.

 

13.       Counterparts. This Agreement may be executed in counterparts
(including by facsimile or e-mailed Adobe® portable document format file), all
of which shall constitute one document, and that by the signature(s) hereto, the
undersigned further agree that facsimile or e-mailed Adobe® portable document
format file signatures shall be effective for all purposes.

 

14.       Section Headings; Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to “Section” or “Sections” refer to the
corresponding Section or Sections of this Agreement unless otherwise specified.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
words “including” and “includes” do not limit the preceding words or terms.

 

 

 

 A-8 

 

 

15.       Notices. All notices, consents, waivers and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is mailed
by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):

 

 

 

If to Purchaser (and the Company following the Closing):

 

 

 

 

 

Walter S. Woltosz

Chief Executive Officer

Simulations Plus, Inc.

42505 10th St W

Lancaster, CA 93534-7059

Facsimile No.:

 

 

with a copy (which shall not constitute notice) to:

 

 

 

Procopio, Cory, Hargreaves & Savitch LLP

12544 High Bluff Drive, Suite 300

San Diego, CA 92130

Attn: Dennis J. Doucette

Facsimile No.: (858) 523-4305

 

   

If to a Shareholder:

 

 

 

 

 

To his or her respective address listed on the signature page hereto

 

 

with a copy (which shall not constitute notice) to:

 

 

 

Amalie L. Tuffin

Hutchison PLLC

3110 Edwards Mill Road, Suite 300

Raleigh, NC 27612

Facsimile No.: (855) 373-3417

 

 

16.       No Third Party Beneficiaries. No person, firm or corporation other
than the Purchaser and Shareholders shall have any rights under this Agreement
or the provisions contained herein.

 

17.       Attorneys’ Fees. In the event of litigation relating to this
Agreement, the prevailing party, shall be entitled to recover reasonable
attorneys’ fees and costs of litigation in addition to all other remedies
available at law or in equity, as determined by the court or arbitrator in
accordance with N.C. Gen. Stat. § 6-21.6. The parties to this Agreement hereby
acknowledge this Agreement is a contract entered into primarily for business or
commercial purposes.

 

 

 

 A-9 

 

 

18.       Individual Liability. The liability for breach of this Agreement by
any Shareholder shall be attributable to that individual Shareholder only and no
other Shareholder shall have any responsibility therefore unless such
Shareholder is independently in breach of this Agreement.

 

19.       Shareholders’ Representative. Nothing in this Agreement shall be
construed to prevent or impair a Shareholder, if serving as the Shareholders’
Representative under the Purchase Agreement, from satisfying all of such
Shareholder’s duties as such Shareholder Representative (which may require
disclosing Confidential Information to counsel in such capacity).

 

(The remainder of this page intentionally left blank/Signature page follows)

 

 

 

 

 

 

 

 A-10 

 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first above written.

 

SHAREHOLDERS:

 

____________________________________

Grant Generaux

Address:

 

____________________________________

Brett Howell

Address:

 

___________________________________

Diane Longo

Address:

 

____________________________________

M. Bud Nelson

Address:

 

____________________________________

Lisl Shoda

Address:

 

____________________________________

Scottington Siler

Address:

 

___________________________________

Paul Watkins

Address:

 

____________________________________

Daniel Weiner

Address:

 

___________________________________

Jeffrey Woodhead

Address:

 

____________________________________

Kyunghee Yang

Address:

 

 

PURCHASER:

 

SIMULATIONS PLUS, INC.

 

 

By: ______________________________________________

Walter S. Woltosz, CEO

 

 

 

 

[Signature page to Non-Competition Agreement]

 A-11 

 

 

 

EXHIBIT B

 

FORM OF GENERAL RELEASE OF CLAIMS

 

[ATTACHED]

 

 

 

 

   

 

 

 

GENERAL RELEASE

 

This General Release is made and entered into as of June 1, 2017 (this
“Release”), by and among (i) DILIsym Services, Inc., a North Carolina
corporation (the “Company”), and (ii) each of the shareholders of the Company
(each, a “Shareholder” and collectively, the “Shareholders”). Each of the
foregoing parties shall be referred to separately herein as a “Party” and
together as the “Parties”.

 

RECITALS

 

WHEREAS, pursuant to the terms and subject to the conditions set forth in that
certain Stock Purchase Agreement dated May 1, 2017 (the “Purchase Agreement”)
among the Company, Simulations Plus, Inc., a California corporation
(“Purchaser”), the Shareholders and Brett A. Howell in the capacity as
Shareholders’ Representative, Purchaser shall acquire all of the Company’s
outstanding ownership interests from the Shareholders (the “Transaction”);

 

WHEREAS, the Shareholders are the sole shareholders of the Company and are
selling all of the outstanding equity interests of the Company;

 

WHEREAS, in order to induce Purchaser to enter into the Purchase Agreement and
to protect adequately the interests of the Purchaser, it is essential that the
Shareholders have agreed to enter into this Agreement in consideration of the
transactions contemplated by, and pursuant to Section 6.2(s)(v) of the Purchase
Agreement; and

 

WHEREAS, this Agreement is integral to the transactions contemplated by the
Purchase Agreement, and it is acknowledged and agreed that the Purchaser would
not consummate such transactions (or pay the consideration specified in the
Purchase Agreement) absent the Shareholders’ execution and delivery of this
Agreement, and this Agreement being in full force and effect and valid, binding
and enforceable against the Shareholders as of the Closing Date and thereafter,
as set forth below.

 

NOW, THEREFORE, for good and valuable consideration, including the covenants
contained herein and for the Parties’ participation in the Transaction and the
resulting payment of the purchase price thereunder to the Shareholders, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:

 

AGREEMENT

 

1.       Definitions. Capitalized terms used but otherwise not defined herein
shall have the meanings ascribed to them in the Purchase Agreement.

 

2.       Release. The Shareholders on behalf of themselves (and for their
successors, assigns, agents, spouse (if any), predecessors, heirs, relatives,
executors, administrators and representatives), hereby irrevocably and
unconditionally release and forever discharge the Company and the Company’s
Affiliates (including Purchaser) and each of their respective past, present or
future officers, directors, employees, members, managers, stockholders,
representatives, predecessors, successors, assigns (individually, each a
“Released Party” and collectively, the “Released Parties”), of and from any and
all proceedings, demands, rights, causes, causes or manners of action, suits,
obligations, liabilities, debts, sums of money, accounts, bills, dues,
covenants, undertakings, promises, contracts, agreements, charges, complaints,
controversies, grievances, damages, judgments, actions, claims, losses, costs or
expenses of any kind whatsoever (including related attorneys’ fees and costs),
known or unknown, suspected or unsuspected, matured, unmatured or contingent,
potential or direct, at law or in equity, whether based in statute, common law
or otherwise, that Shareholders may now have or have ever had against the
Released Parties or any of them by reason of any act, omission, transaction, or
event occurring up to and including the consummation of the Transaction on the
date of this Release (the “Claims”); but excluding any rights of any
Shareholders (including their successors, assigns, and representatives) under
the Purchase Agreement and the Transaction Documents.

 

 

 B-1 

 

 

3.       Section 1542 Release. The Shareholders acknowledge that there is a
possibility that subsequent to the execution of this Release, the Shareholders
will discover facts or incur or suffer Claims that were unknown or unsuspected
at the time this Release was executed, and which if known by the Shareholders at
that time may have materially affected the Shareholders’ decision to execute
this Release. The Shareholders acknowledge and agree that by reason of this
Release, and the releases contained herein, the Shareholders are assuming any
risk of such unknown facts and such unknown and unsuspected Claims. The
Shareholders have been advised of the existence of Section 1542 of the
California Civil Code (“Section 1542”) which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

Notwithstanding such provisions, this Release shall constitute a full release in
accordance with its terms. The Shareholders hereby knowingly and voluntarily
waive the provisions of Section 1542, as well as any other statute, law or rule
of similar effect.

 

4.       No Assignment of Claims. The Shareholders represent to the Released
Parties that the Shareholders have made no assignment or transfer of any of the
Claims herein above mentioned or implied.

 

5.       Bar To Claims. In signing this Release, the Shareholders acknowledge
and intend that this Release shall be effective as a bar to each and every one
of the Claims herein above mentioned or implied. The Shareholders expressly
consent that this Release shall be given full force and effect according to each
and all of its express terms and provisions, including those relating to unknown
and unsuspected Claims (notwithstanding any state statute that expressly limits
the effectiveness of a general release of unknown, unsuspected or unanticipated
Claims), if any, as well as those relating to any other Claims herein above
mentioned or implied. The Shareholders acknowledge and agree that this waiver is
an essential and material term of this Release and that without such waiver the
Purchaser would not have agreed to consummate the transactions contemplated by
the Purchase Agreement. The Shareholders further agree that in the event any of
them should assert any Claim seeking damages against any of the Released
Parties, this Release shall serve as a complete defense to any such Claim. The
Shareholders further agree that there does not exist any Claim of the type
described in or implied by the first paragraph hereof and they are not aware of
any pending or threatened Claims of the type described in or implied by the
first paragraph hereof.

 

 

 

 B-2 

 

 

6.       Covenant Not to Sue. The Shareholders further agree not to bring,
continue or maintain any claim or legal proceeding against any Released Party
before any court, administrative agency or other forum by reason of any Claim
hereby released. If any agency or court assumes jurisdiction of any Claim
released hereby against any Released Party, the Shareholders will direct that
agency or court to withdraw from or dismiss the matter with prejudice. The
Shareholders also agree that if any Shareholder violates this Release by suing a
Released Party with respect to any Claim hereby released, the Shareholders will
pay all costs and expenses of defending against the suit incurred by any
Released Party, including reasonable attorney’s fees.

 

7.       No Admission. The Shareholders agree that neither this Release, nor the
furnishing of the consideration for this Release, shall be deemed or construed
at any time to be an admission by any Released Party or the Shareholders of any
improper or unlawful conduct.

 

8.       Certain Acknowledgements. In connection with execution of this Release,
each of the Shareholders acknowledges, understands and agrees that such
Shareholder:

 

(a)Has carefully read and fully understands all of the provisions of this
Release and the Purchase Agreement, and has had the opportunity to discuss the
same and its consequences with his or her attorneys;

 

(b)Is, through this Release, releasing the Released Parties from any and all
Claims the Shareholder may have against the Released Parties;

 

(c)Knowingly and voluntarily agrees to all the terms set forth in this Release;

 

(d)Knowingly and voluntarily intends to be legally bound by this Release;

 

(e)Was advised and is hereby advised in writing to consult with an attorney of
his or her choice prior to executing this Release concerning its meaning and
application; and

 

(f)Agrees that the provisions of this Release may not be amended, waived,
changed or modified except by an instrument in writing signed by the Parties.

 

9.       Governing Law. This Release shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of California applicable to contracts
made in that state, without giving effect to any choice of law or conflict of
law provision or rule that would cause the application of the laws of any
jurisdiction other than the State of California.

 

10.       Severability. Whenever possible, each provision of this Release shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision

 

 

 

 B-3 

 

of this Release is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any other
jurisdiction, but this Release shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein. The remedies provided herein are cumulative and not
exclusive of any remedies provided by applicable law.

 

11.       Entire Agreement. This Release, the Purchase Agreement and the
Transaction Documents supersede any previous agreement, negotiation or
understanding regarding the subject matter hereof, whether in writing or
otherwise. No promises or agreements not contained herein or therein have been
made by the Released Parties to induce the Parties to enter into this Release.

 

12.       Additional Documentation and Cooperation. The Parties agree to execute
such additional documentation and cooperate in further proceedings necessary to
effectuate the terms of this Release without charge or other consideration.

 

13.       Headings. Section and paragraph headings contained in this Release are
for convenience and shall not be considered for any purpose in construing this
Release.

 

14.       Successors and Third-Party Beneficiaries. This Release shall bind and
inure to the benefit of the Parties and their respective successors.

 

15.       Attorneys' Fees. Should any action or other proceeding be necessary to
enforce any of the provisions of this Release the prevailing Party will be
entitled to recover its, his or her actual attorneys' fees incurred in each and
every action or proceeding, including any and all appeals or petitions
therefrom.

 

16.       Waiver of Terms. A waiver of any term or condition of this Release
will not be deemed to be, and may not be construed as, a waiver of any other
term or condition hereof.

 

17.       Representation. Each of the Parties hereto warrants and represents
that in executing this Release, it has relied on legal advice from the attorney
of its, his or her choice, that the terms of this Release and its consequences
have been completely read and explained to each of the Parties by said attorney,
and that each of the Parties fully understands the terms of this Release.

 

[Remainder of page intentionally left blank; Signature page follows]

 

 

 B-4 

 

 

 

IN WITNESS WHEREOF, the Parties have executed this General Release as of the
date first written above.

 

 

SHAREHOLDERS:

 

____________________________________

Grant Generaux

Address:

 

____________________________________

Brett Howell

Address:

 

___________________________________

Diane Longo

Address:

 

____________________________________

M. Bud Nelson

Address:

 

____________________________________

Lisl Shoda

Address:

 

____________________________________

Scottington Siler

Address:

 

___________________________________

Paul Watkins

Address:

 

____________________________________

Daniel Weiner

Address:

 

___________________________________

Jeffrey Woodhead

Address:

 

____________________________________

Kyunghee Yang

Address:

 

 

COMPANY:

 

DILIsym Services, Inc.

 

 

By: ___________________________

Name:

Title:

 

 

 

[Signature Page to General Release]

 

 

 B-5 

 

 

SCHEDULE 1.11

EARN-OUT SCHEDULE

 

 

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