Exhibit 10.1
Execution Copy
ASSET PURCHASE AGREEMENT
BY AND AMONG
HOMELAND SECURITY CAPITAL CORPORATION,
DEFAULT SERVICING USA, INC.,
DEFAULT SERVICING, LLC,
AND
DAL GROUP LLC
June 22, 2011

 

 

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TABLE OF CONTENTS

         
ARTICLE I PURCHASE AND SALE OF ASSETS
    1  
 
       
1.1 Purchase and Sale of Assets
    1  
1.2 Excluded Assets
    3  
1.3 Assumption of Liabilities
    4  
1.4 Excluded Liabilities
    4  
1.5 Closing
    6  
1.6 Consent of Third Parties
    6  
1.7 Further Assurances
    7  
1.8 Withholding Rights
    7  
1.9 Transfer Taxes
    7  
 
       
ARTICLE II PURCHASE PRICE; CONTINGENT PAYMENTS
    7  
 
       
2.1 Purchase Price
    7  
2.2 Contingent Payments
    7  
2.3 Closing Prorations and Adjustments
    10  
2.4 Allocation of Purchase Price
    10  
 
       
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBER
    10  
 
       
3.1 Organization, Good Standing and Qualification
    11  
3.2 Subsidiaries and Investments
    11  
3.3 Ownership of the Company
    11  
3.4 Authorization; Binding Obligation
    12  
3.5 Consents and Approvals
    12  
3.6 No Violation
    12  
3.7 Business Licenses
    13  
3.8 Title to and Condition of Properties; Sufficiency of Assets; Ownership of
Assets
    13  
3.9 Real Property
    14  
3.10 Personal Property Leases
    15  
3.11 Environmental Matters
    15  
3.12 Financial Statements; No Undisclosed Liabilities
    16  
3.13 Absence of Certain Events
    17  
3.14 Legal Proceedings
    18  
3.15 Compliance with Laws
    19  
3.16 Employment Matters
    19  
3.17 No Brokers
    21  
3.18 Taxes
    21  
3.19 Contracts
    21  
3.20 Transactions With Affiliates
    23  
3.21 Insurance
    24  
3.22 Intellectual Property
    24  
3.23 [Reserved.]
    27  
3.24 Absence of Restrictions on Business Activities
    27  
3.25 Certain Business Practices
    27  
3.26 Anti-Terrorism Laws; Trading with the Enemy
    27  
3.27 Books and Records
    28  
3.28 [Reserved.]
    28  
3.29 Relationships with Clients and Vendors
    28  
3.30 Solvency
    28  
3.31 Disclosure
    29  

 

 

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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE MEMBER
    29  
 
       
4.1 Organization; Good Standing and Qualification
    29  
4.2 Authority; Execution; Enforceability
    29  
4.3 Title to Company Membership Percentages
    29  
4.4 Consents and Approvals
    29  
4.5 No Violation
    30  
4.6 Legal Proceedings
    30  
 
       
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BUYER AND HSCC
    30  
 
       
5.1 Organization; Good Standing and Qualification
    30  
5.2 Authorization; Binding Obligation
    30  
5.3 Consents and Approvals
    31  
5.4 No Conflict
    31  
5.5 No Brokers
    31  
5.6 Legal Proceedings
    31  
 
       
ARTICLE VI PRE-CLOSING COVENANTS
    31  
 
       
6.1 Access and Investigation
    31  
6.2 Conduct of Business
    32  
6.3 Consents and Approvals; Regulatory Filings
    33  
6.4 Commercially Reasonable Efforts
    33  
6.5 Update Schedules
    33  
6.6 Exclusivity
    34  
6.7 Confidentiality
    34  
 
       
ARTICLE VII ADDITIONAL COVENANTS
    35  
 
       
7.1 Public Announcements
    35  
7.2 Retention of and Access to Books and Records
    35  
7.3 Litigation Cooperation
    35  
7.4 Use of Names
    35  
7.5 Transition Matters
    36  
7.6 Accounts Receivable/Collections
    36  
7.7 Employment Matters
    36  
 
       
ARTICLE VIII CONDITIONS TO CLOSING
    38  
 
       
8.1 Conditions to Obligation of Each Party
    38  
8.2 Conditions to Obligations of the Buyer
    39  
8.3 Conditions to Obligations of the Company and the Member
    40  
 
       
ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INDEMNIFICATION
    41  
 
       
9.1 Survival of Representations, Warranties and Covenants
    41  
9.2 Indemnification by the Company and the Member
    42  
9.3 Indemnification by the Buyer and HSCC
    43  
9.4 Limitations on Indemnification
    43  
9.5 Indemnification Process
    44  
9.6 Other Claims
    46  
9.7 Fraud and Related Claims; Exclusive Remedy
    46  
9.8 Characterization of Payments
    46  
9.9 Calculation of Losses
    46  

 

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ARTICLE X TERMINATION
    47  
 
       
10.1 Termination
    47  
10.2 Effect of Termination
    48  
 
       
ARTICLE XI MISCELLANEOUS
    48  
 
       
11.1 Entire Agreement
    48  
11.2 Successors and Assigns; No Third Party Beneficiaries
    48  
11.3 Amendment and Waiver
    49  
11.4 Expenses
    49  
11.5 Execution of Agreement
    49  
11.6 Governing Law; Venue
    49  
11.7 Specific Performance
    49  
11.8 Interpretation
    50  
11.9 Severability
    50  
11.10 Notices
    50  
11.11 Representation by Counsel
    51  
11.12 Construction
    52  
11.13 Waivers
    52  
11.14 Third Party Beneficiaries
    52  
11.15 Bulk Sales Law
    52  
11.16 Waiver of Jury Trial
    52  

 

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EXHIBITS AND SCHEDULES
EXHIBITS:

     
Exhibit A
  Form of Non-Competition Agreement
Exhibit B
  Form of Bill of Sale
Exhibit C
  Form of Legal Opinion

SCHEDULES:

     
Schedule I
  Index of Defined Terms; Table of Definitions
 
   
Schedule 1.1(a)
  Assigned Contracts
Schedule 1.1(b)
  Tangible Personal Property
Schedule 1.1(c)
  Approvals and Orders
Schedule 1.1(d)
  Credits, Refunds, Prepaid Expenses Etc.
Schedule 1.1(h)
  Telephone and Facsimile Numbers
Schedule 1.1(i)
  Real and Personal Property
Schedule 1.2(i)
  Certain Excluded Assets
Schedule 1.3(b)
  Accrued Vacation
Schedule 1.4(p)
  Certain Excluded Liabilities
 
   
Company Disclosure Schedule
Member Disclosure Schedule

 

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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of June 22, 2011, is
made by and among Homeland Security Capital Corporation, a Delaware corporation
(“HSCC”), Default Servicing USA, Inc., a Delaware corporation (“Buyer”), Default
Servicing, LLC, a Delaware limited liability company (the “Company”), DAL Group,
LLC, a Delaware limited liability company, and the sole member of the Company
(the “Member”), and Timios, Inc., solely for purposes of Section 10.1(b) hereof.
WHEREAS, the Company is engaged in the business of providing real estate owned
liquidation related services, including property inspection, eviction, and
broker assignment services (the “Business”);
WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell, assign and transfer to the Buyer, and the Buyer wishes
to purchase from the Company, all of the assets and properties owned, used or
held for use by the Company, and the Buyer is willing to assume from the Company
certain Liabilities;
WHEREAS, the Member owns the entire membership percentage of the Company;
WHEREAS, as a condition and material inducement to the Buyer entering into this
Agreement, concurrently with the execution and delivery of this Agreement,
Mrs. Jenny Johnson (the “Designated Employee”) has entered into an employment
agreement with the Company, dated as of the date hereof, which agreement shall
become effective as of the Closing Date (the “Employment Agreement”);
WHEREAS, as a condition and material inducement to the Buyer consummating the
transactions contemplated by this Agreement, each of the Company and the Member
shall enter into, prior to the Closing, a non-competition, non-solicitation and
confidentiality agreement with the Buyer in substantially the form attached
hereto as Exhibit A (each, a “Non-Competition Agreement”); and
WHEREAS, capitalized terms used and not otherwise defined herein shall have the
meanings set forth in Schedule I attached hereto.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets. At the Closing, on the terms and subject to the
conditions set forth in this Agreement, the Company shall sell, assign, transfer
and deliver to the Buyer, and relinquish to the Buyer (together with its
successors and assigns) in perpetuity, free and clear of all Liens, all right,
title and interest in and to all of the Acquired Assets. As used in this
Agreement, the term “Acquired Assets” means all of the assets, properties,
rights, interests and goodwill of the Company of every kind and nature
whatsoever, whether real, personal or mixed, tangible or intangible, wherever
located, owned, used or held for use by the Company, including the following,
but excluding the Excluded Assets:
(a) all sales Contracts pursuant to which the Company has agreed to provide
services to customers and (ii) all other Contracts listed on Schedule 1.1(a)
attached hereto (collectively, the “Assigned Contracts”);

 

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(b) all tangible personal property of the Company, including, all equipment,
machinery, tools, molds, furniture, fixtures, office equipment, computers,
communications equipment, supplies, spare and replacement parts and other
physical assets of the Company (including the tangible personal property listed
on Schedule 1.1(b) attached hereto);
(c) all rights of the Company, to the extent transferable, under all Approvals
and Orders relating to the operation of the Business, including those listed on
Schedule 1.1(c) attached hereto;
(d) all rights of the Company with respect to all credits, refunds, prepaid
expenses, deferred charges, advance payments, security deposits and prepaid
items, including those listed on Schedule 1.1(d) attached hereto;
(e) all accounts receivable, notes receivable, Indebtedness, and other rights to
payment payable or otherwise owed to the Company (collectively, the “Accounts
Receivable”);
(f) all Company Intellectual Property, including the business name “Default
Servicing, LLC” and derivations thereof, and all goodwill associated therewith,
licenses and sublicenses granted in respect thereto and rights thereunder,
together with all claims against third parties for profits and all costs,
losses, claims, liabilities, fines, penalties, damages and expenses (including
interest which may be imposed in connection therewith), court costs and
reasonable fees and disbursements of counsel, consultants and expert witnesses
incurred by reason of the past infringement, alleged infringement, unauthorized
use or disclosure or alleged unauthorized use or disclosure of any Company
Intellectual Property, together with the right to sue for, and collect the same,
or to sue for injunctive relief, for the Buyer’s own use and benefit, and for
the use and benefit of its successors, assigns or other legal representatives;
(g) all Books and Records of the Company located in Louisville, Kentucky or
accessible using the Res.Net online real estate systems, access to all financial
Books and Records located in Plantation, Florida, and all human resources Books
and Records for the Transferred Employees, to the extent permissible by law
(collectively, the “Transferred Books and Records”);
(h) all telephone numbers and facsimile numbers, including those listed on
Schedule 1.1(h) attached hereto;
(i) all real and personal property interests and rights hereunder (including
leasehold interests, licenses, and occupancy rights, collocation rights,
easements, servitudes and access to rights-of-way) relating to real or personal
property, including the real and personal property listed on Schedule 1.1(i)
attached hereto;

 

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(j) all claims, demands, causes of action, rights of recovery, rights of
set-off, rights of recoupment, guarantees, warranties, indemnities and similar
rights of the Company relating to the Acquired Assets or the Business and all
rights to proceeds under insurance policies and indemnity agreements relating to
the Acquired Assets or the Business, except to the extent related to the
Excluded Assets or the Excluded Liabilities;
(k) all improvements and fixtures to the real property leased by the Company;
and
(l) all goodwill of the Company.
1.2 Excluded Assets. Notwithstanding anything to the contrary in Section 1.1
above, the following assets and property of the Company are to be retained by
the Company and shall not constitute Acquired Assets (collectively, the
“Excluded Assets”):
(a) all Contracts to which the Company is a party or by which the Company or any
of its assets or properties are bound, other than the Assigned Contracts (the
“Excluded Contracts”);
(b) all rights of the Company under this Agreement and the Related Agreements;
(c) all cash and bank accounts of the Company;
(d) all minute books and equity records of the Company;
(e) subject to the provisions of Section 1.1(j), all insurance policies of the
Company;
(f) all personnel records of all Company Employees other than Transferred
Employees and all medical records and other medical information of Transferred
Employees that the Company is prohibited by Law from transferring to the Buyer;
(g) all Employee Benefit Plans of the Company and all assets related thereto;
(h) all payments from closings on properties listed by the Company that occur
prior to the Closing Date; and
(i) those assets specifically set forth in Schedule 1.2(i) attached hereto.

 

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1.3 Assumption of Liabilities. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing, the Buyer shall assume from the Company
only the following liabilities and obligations (the “Assumed Liabilities”):
(a) contractual obligations of the Company arising after the Closing under any
of the Assigned Contracts to the extent that the Company’s rights thereunder are
actually (with consent where required) assigned to the Buyer; provided, that,
the Buyer shall not assume, and does not hereby agree to pay, discharge or
perform, (i) any Damages relating in any manner to or arising from any breach or
default of the Company of any Assigned Contract occurring on or prior to the
Closing Date regardless of whether the Company discloses such breach or default
pursuant to this Agreement, or (ii) any Liability to indemnify any Person under
such Assigned Contract arising from or relating to any act or omission occurring
prior to the Closing
(b) the Accrued Vacation with respect to the Transferred Employees, as set forth
on Schedule 1.3(b).
1.4 Excluded Liabilities. Except as expressly assumed pursuant to Section 1.3,
the Buyer is not assuming and shall not have any liability or obligation
whatsoever for any Liabilities of the Company or any of its predecessors or
Affiliates whatsoever, whether or not arising out of the ownership or operation
of the Business or the Acquired Assets, all of which will be retained and
satisfied when due by the Company (the “Excluded Liabilities”). Without limiting
the generality of the foregoing, the Buyer shall not assume or be deemed to
assume any of the following Liabilities, all of which shall constitute Excluded
Liabilities:
(a) any Liabilities arising under or relating to any written or oral Contract to
which the Company or its assets or properties are otherwise subject or bound,
other than Liabilities arising under the Assigned Contracts to the extent
provided in Section 1.3(a);
(b) any Liabilities of the Company or any of its predecessors or Affiliates in
respect of any Indebtedness, trade payables, accrued expenses or Company
Transaction Expenses, except to the extent provided in Section 1.3(b);
(c) any Liabilities of the Company or any of its predecessors or Affiliates to
any Affiliate or current or former member, option holder or holder of other
equity interests of the Company or any of its predecessors or Affiliates;
(d) any Liabilities of the Company or any of its predecessors or Affiliates for
or in respect of Taxes, including any sales Taxes or Taxes resulting from or
relating to the consummation of the transactions contemplated hereby (including
any Taxes that may become due as a result of any bulk sales or similar tax that
may be assessed against the Company following the Closing);
(e) any Liabilities of the Company to any present or former manager, member,
officer, employee, consultant or independent contractor of the Company or any of
its predecessors or Affiliates, or any of their respective spouses, children,
other dependents or beneficiaries, including any and all Liabilities arising
under any federal, state, local or foreign Laws or Orders (including those
relating to employee health and safety);
(f) any Liabilities of the Company or any of its predecessors or Affiliates for
any Actions against the Company or any of its predecessors or Affiliates,
including any Actions pending or threatened against the Company or any of its
predecessors or Affiliates as of the Closing Date;

 

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(g) any Liabilities of the Company or any of its predecessors or Affiliates
arising out of or resulting from and violation of or non-compliance with any
federal, state, local or foreign Laws or Orders;
(h) any Liabilities of the Company or any of its predecessors or Affiliates
arising out of, relating to or resulting from any obligation to indemnify any
Person (other than pursuant to an Assigned Contract to the extent assumed
pursuant to Section 1.3(a));
(i) any Liabilities of the Company arising under this Agreement or any of the
Related Agreements;
(j) any Liabilities resulting from or relating to products sold or services
performed by the Company or any of its predecessors or Affiliates, including any
warranty Liabilities;
(k) any Liabilities relating to, based in whole or in substantial part on events
or conditions occurring or existing in connection with, or arising out of, the
shutdown prior to the Closing of any of the operations and facilities utilized
by the Company in connection with the Business, including any action prior to
the Closing that could be construed as a “plant closing” or “mass layoff,” as
those terms are defined in WARN, or any “employment loss,” as defined in WARN,
that any Company Employee may suffer or may be deemed to suffer prior to the
Closing;
(l) any Liabilities of the Company or any of its predecessors or Affiliates
based upon such Person’s acts or omissions occurring after the Closing;
(m) any Liabilities arising under or with respect to any Employee Benefit Plan
or any benefit, tax or compensation Liability of any ERISA Affiliate;
(n) any Liabilities of the Company arising in connection with or in any way
relating to any property now or previously owned, leased or operated by the
Company, its predecessors or Affiliates, or any activities or operations
occurring or conducted at any real property now or previously owned, operated or
leased by the Company, its predecessors or Affiliates (including offsite
disposal), including any Liabilities which arise under or relate to any
Environmental Laws;
(o) any other Liabilities attributable in any manner to the Excluded Assets; and
(p) any Liabilities set forth on Schedule 1.4(p) attached hereto.
The disclosure of any obligation or Liability on any schedule to this Agreement
shall not create an Assumed Liability or other Liability of the Buyer, except
where such disclosed obligation has been expressly assumed by the Buyer as an
Assumed Liability in accordance with provisions of Section 1.3 hereof.

 

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1.5 Closing. Subject to the terms and conditions hereof, the closing of the
transactions contemplated by this Agreement (the “Closing”) shall take place
remotely via the exchange of documents and signatures commencing at 10:00 a.m.
(EDT), on the third (3rd) Business Day following the date on which all of the
conditions set forth in Article VIII have been satisfied or waived (other than
any such conditions that by their terms cannot be satisfied until the Closing
Date, which conditions shall be required to be so satisfied or waived on the
Closing Date), unless another time and/or date is agreed to in writing by the
Member and Buyer (such time and date being herein called the “Closing Date”).
For financial and accounting purposes, the Closing shall be deemed to have
occurred as of 12:01 a.m. (EDT) on the Closing Date.
1.6 Consent of Third Parties.
(a) Notwithstanding anything in this Agreement or in any Related Agreement to
the contrary, neither this Agreement nor any such Related Agreement shall
constitute an agreement to assign or otherwise transfer, or require the Buyer to
assume any obligations under, any Assigned Contract if an attempted assignment
or transfer thereof would, without the consent of a third party to such
assignment or transfer, constitute a breach thereof, would be ineffective, would
affect adversely the rights of the Buyer thereunder or would violate any
applicable law. If any such consent has not been obtained as of the Closing Date
and the Buyer nevertheless determines to proceed with the Closing, the Buyer may
waive the closing condition that such consent be delivered at the Closing, and
the Company shall use its best efforts to obtain such consent following the
Closing, and the Buyer will provide reasonable cooperation to the Company in
seeking to obtain any such consent. The Company shall pay and discharge any and
all out-of-pocket costs or expenses of seeking to obtain or obtaining any such
consent or approval whether before or after the Closing Date.
(b) If any Assigned Contract is not transferred to the Buyer at the Closing
pursuant to this Agreement, the Company shall cooperate with the Buyer in any
reasonable arrangement designed to provide for the Buyer all of the benefits of,
and to have the Buyer assume the burdens, liabilities, obligations and expenses
expressly assumed by the Buyer hereunder with respect to, such Assigned
Contract. In such event, until such consent has been obtained, (i) the Buyer
shall use commercially reasonable efforts to perform in the Company’s name, and,
in respect of the incremental costs incurred by the Buyer in performing in the
Company’s name, at the Company’s expense, all of the Company’s obligations with
respect to each Assigned Contract; provided, however, that the Company shall not
be required to take any action in performing such obligations which, in the
Buyer’s reasonable judgment, would subject the Buyer to any Liability or an
unreasonable risk of incurring any such Liability and (ii) the Company shall
take all actions reasonably requested by the Buyer to enforce for the benefit of
the Buyer any and all rights of the Company with respect to any such Assigned
Contract.
(c) The Company hereby authorizes the Buyer to perform all of its obligations
after the Closing with respect to all Assigned Contracts that are not assigned
to the Buyer at the Closing and the Company hereby grants to the Buyer a power
of attorney to act in the name of the Company with respect thereto. Such power
of attorney shall be coupled with an interest and shall be irrevocable. The
Company agrees to remit promptly to the Buyer all collections or payments
received by the Company in respect of all such Assigned Contracts, and shall
hold all such collections or payments in trust for the benefit of, and promptly
pay the same over to, the Buyer; provided, however, that nothing herein shall
create or provide any rights or benefits in or to third parties.

 

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(d) Nothing in this Section 1.6 shall be deemed to modify in any respect any of
the Company’s representations or warranties set forth herein or be deemed to
constitute an agreement to exclude from the Acquired Assets any assets described
under Section 1.1.
1.7 Further Assurances. At any time and from time to time after the Closing, at
the request of the Buyer and without further consideration, the Company will,
and the Member will cause the Company to, execute and deliver such other
instruments of sale, transfer, conveyance, assignment and confirmation, and will
take such further action, as may be reasonably requested in order to more
effectively transfer, convey and assign to the Buyer, and to confirm the Buyer’s
title in and to, the Acquired Assets, and each of the parties shall execute such
other documents and take such further action as may be reasonably required or
desirable to carry out the provisions of this Agreement and the transactions
contemplated hereby.
1.8 Withholding Rights. The Buyer shall be entitled to deduct and withhold from
any amounts otherwise payable pursuant to this Agreement such amounts as are
required to be deducted and withheld with respect to the making of such payments
under the provisions of any applicable Tax Laws. Any such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the Person
in respect of which such deduction and withholding was made.
1.9 Transfer Taxes. All sales (including bulk sales), transfer and similar
Taxes, if any, payable in connection with the transactions contemplated hereby
shall be paid, jointly and severally, by the Company and the Member.
ARTICLE II
PURCHASE PRICE; CONTINGENT PAYMENTS
2.1 Purchase Price. The aggregate purchase price (the “Purchase Price”) payable
for the Acquired Assets shall be (i) Five Hundred Thousand Dollars ($500,000),
reduced by an amount that is equal to one half of the Accrued Vacation (the
“Base Purchase Price”), plus (ii) Contingent Payment Amount that becomes payable
pursuant to Section 2.2. At the Closing, the Buyer shall pay or cause to be paid
to the Company the Base Purchase Price by wire transfer of immediately available
funds to a United States bank account designated by the Company to the Buyer in
writing.
2.2 Contingent Payments.
(a) The Company shall be eligible to earn an aggregate of up to an additional
amount equal to Three Million Two Hundred Fifty Thousand Dollars ($3,250,000)
less an amount equal to (i) fifty percent (50%) of the Pre-Closing Revenue from
and including June 1, 2011 through June 17, 2011, plus (ii) forty percent (40%)
of the Pre-Closing Revenue from and including June 18, 2011 through the day
before the Closing Date (the “Maximum Contingent Payment Amount”) in contingent
payments depending upon Net Revenue during each Measurement Period, on the terms
and conditions set forth in this Section 2.2 (any amount earned pursuant to this
Section 2.2, a “Contingent Payment Amount”). For purposes of this
Section 2.2(a), “Pre-Closing Revenue” shall mean the aggregate dollar amount of
revenues (net of credits, discounts, refunds, rebates and returns) recognized by
the Company, calculated in accordance with GAAP and the Company’s accounting
principles. Within ten (10) Business Days following the Closing, the Company
shall deliver to the Buyer a certificate certified by the President of the
Company setting forth the calculation of the Maximum Contingent Payment Amount.
If the Buyer objects to the calculation of the Maximum Contingent Payment
Amount, the Buyer shall deliver to the Company within ten (10) Business Days
following the Buyer’s receipt of the Company’s calculation of the Maximum
Contingent Payment Amount a written notice setting forth in reasonable detail
such objections (a “Maximum Contingent Payment Amount Objection Notice”),
together with all supporting documentation.

 

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(b) Within thirty (30) days following the end of each calendar month in each of
the calendar years 2011, 2012, 2013 and 2014 (each, a “Measurement Period”)
commencing with the calendar month in which the Closing Date occurs, the Buyer,
in good faith, shall calculate the Net Revenue (which Net Revenue shall be
pro-rated, if necessary, for the calendar month in which the Closing Date
occurs) for such Measurement Period and shall deliver to the Member and the
Company a certificate setting forth such calculation in reasonable detail, which
calculation shall be final and binding on all parties unless the Member or the
Company objects to such calculation as set forth in Section 2.2(e) below.
Subject to the provisions of Section 9.2(b), within ten (10) days following the
final determination of the Net Revenue for such Measurement Period, the Buyer
shall pay (or, if deposited with the Escrow Agent (as defined below) pursuant to
Section 2.2(e), cause the Escrow Agent to pay) to the Company an amount equal to
the applicable Agreed Percentage of the Net Revenue for such Measurement Period;
provided, however, that the maximum aggregate payments to which the Company
shall be entitled hereunder shall not exceed the Maximum Contingent Payment
Amount; provided further, however, that the Buyer shall deposit on behalf of the
Company into escrow with SunTrust Bank (the “Escrow Agent”) Sixteen Thousand Six
Hundred Sixty-Six Dollars and Sixty-Seven Cents ($16,666.67) (“Escrow Deposit
Amount”) out of the monthly Contingent Payment Amounts that are payable to the
Company pursuant to this Section 2.2 for each calendar month commencing with the
payment for the calendar month ending July 31, 2012 and ending once the
aggregate amount deposited with the Escrow Agent pursuant to this Section 2.2(b)
equals Two Hundred Fifty Thousand Dollars ($250,000) (the “Escrow Amount”);
provided that if any such monthly Contingent Payment Amount is less than the
Escrow Deposit Amount, then such short fall in the Escrow Deposit Amount for
that month shall be payable into the escrow from future monthly Contingent
Payment Amounts not already required to be deposited into the escrow pursuant to
this Section 2.2(b). The Escrow Amount shall be held by the Escrow Agent
pursuant to the terms and conditions of an escrow agreement in a form agreed to
by the Parties prior to the Closing (the “Escrow Agreement”) and to be available
to satisfy claims by the Buyer Indemnified Persons for indemnification pursuant
to Section 9.2(a)(viii). Upon the third (3rd) anniversary of the Closing Date,
the Escrow Amount shall be released to the Company, less any amounts used or set
aside to satisfy final or unresolved claims by the Buyer Indemnified Persons for
indemnification pursuant to Section 9.2(a)(viii), and, upon the satisfaction of
such claims, any remaining amounts held in escrow shall be released to the
Company.
(c) Upon payment of the aggregate Contingent Payment Amounts in the amount of
the Maximum Contingent Payment Amount (whether such payments are placed in
escrow as contemplated by Section 2.2(b) or Section 2.2(e), paid to the Company
or offset pursuant to the provisions of Section 9.2(b)), then, except with
respect to the Company’s right to any amounts placed in escrow pursuant to
Section 2.2(b) or Section 2.2(e), the respective rights and obligations of the
Company and the Buyer pursuant to this Section 2.2 shall terminate.

 

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(d) With respect to Section 2.2(b), the Buyer shall, upon the reasonable request
of the Company, provide the Company with reasonable evidence substantiating such
calculations; provided, however, that the Company shall hold all such
information in strict confidence and shall not use any such information for any
purpose whatsoever other than to verify the calculation of Net Revenue.
(e) If the Company objects to the calculation of the Net Revenue or any
Contingent Payment, the Company shall deliver to the Buyer within thirty
(30) days following the Company’s receipt of the Buyer’s calculation of the Net
Revenue a written notice setting forth in reasonable detail such objections (a
“Net Revenue Objection Notice;” each Net Revenue Objection Notice or Maximum
Contingent Payment Amount Objection Notice is an “Objection Notice”), together
with all supporting documentation. If the Company delivers a Net Revenue
Objection Notice to the Buyer, the Buyer shall pay to the Company the amount of
the applicable Contingent Payment Amount not in dispute, and shall deposit any
amount in dispute into escrow with the Escrow Agent to be held by the Escrow
Agent pursuant to the terms and conditions of the Escrow Agreement. If either
the Buyer or the Company delivers an Objection Notice to the other, the Buyer
and the Company shall attempt in good faith to resolve the matters set forth in
the applicable Objection Notice within twenty (20) days after receipt of the
same by the Buyer or the Company, as applicable. If the Parties are unable to do
so, either the Buyer or the Company may refer all remaining disputes to a
nationally recognized accounting firm as mutually agreed upon by the Buyer and
the Company (the “Dispute Accounting Firm”) which shall be instructed to resolve
such disputes within thirty (30) days of the referral. The Buyer and the Company
shall have the right to meet jointly with the Dispute Accounting Firm during
this period and to present their respective positions. The resolution of
disputes by the Dispute Accounting Firm will be set forth in writing and will be
conclusive and binding upon the parties, upon the date of such resolution,
absent manifest error. In making its determination, the Dispute Accounting Firm
shall consider only those items that the Company and Buyer are unable to resolve
and the Dispute Accounting Firm shall be bound by the terms and conditions of
this Agreement, including the definition of Net Revenue and the terms of this
Section 2.2. The Company and the Buyer will each pay their own fees and expenses
(including any fees and expenses of their accountants and other representatives)
in connection with the resolution of any dispute under this Section 2.2
(excluding the fees and expenses of the Dispute Accounting Firm). The fees and
expenses of the Dispute Accounting Firm pursuant to this Section 2.2(e) shall be
borne by the Buyer and the Company, in inverse proportion as they may prevail on
matters resolved by the Dispute Accounting Firm, which proportionate allocations
shall also be determined by the Dispute Accounting Firm at the time the
determination of such firm is rendered on the merits of the matters submitted.
(f) For purposes hereof, the term “Net Revenue” shall mean the aggregate dollar
amount of revenues (net of credits, discounts, refunds, rebates and returns)
recognized by the Acquired Business during a Measurement Period, calculated in
accordance with GAAP and the Buyer’s accounting principles; the term “Agreed
Percentage” shall mean, with respect to any calendar month in the calendar year
2011, forty-five percent (45%); any calendar month in the calendar year 2012,
thirty-five percent (35%); any calendar month in the calendar year 2013,
thirty-five percent (35%); and any calendar month in the calendar year 2014,
thirty percent (30%); and the term “Acquired Business” shall mean the Business
as operated through the Buyer or its Affiliates, and all other business
conducted by the Buyer following the Closing, which will maintain separate
financial statements through the end of the final 2014 Measurement Period. Net
Revenue payable in connection with the sale of properties listed by the Company
shall be recognized at the time of the closing of such sale, not the receipt of
payment of such Net Revenue.

 

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(g) Neither HSCC nor Buyer may sell the Acquired Business, or any substantial
portion thereof, unless the purchaser in such transaction agrees in writing
enforceable by the Company and the Member to be bound by the provisions of this
Section 2.2 as though it is the Buyer. The Buyer and HSCC shall remain liable to
the Member under this Section 2.2, unless they are released from such liability
by the Member in writing.
2.3 Closing Prorations and Adjustments. The following shall be prorated (any
amount owed by the Buyer as a result of such proration to be referred to as the
“Buyer Prorated Amount”) between the Buyer and the Company as of 12:01 a.m.
(EDT) on the Closing Date, on the basis of the actual number of days elapsed
during the month in which the Closing occurs, and the Buyer shall deliver to the
Company the Buyer Prorated Amount within ten (10) Business Days following the
Closing by a check payable to the Company:
(a) Initial Base Rent, as defined in the Lease, dated as of July 17, 2008, by
and between Commerce Crossings Business Centers, LLC and the Company (the
“Office Lease”), paid on the first day of the month in which the Closing occurs;
and
(b) The portion of Annual Operating Costs, as defined in the Office Lease, paid
on the first day of the month in which the Closing occurs.
2.4 Allocation of Purchase Price. The Purchase Price shall be allocated among
the Acquired Assets as proposed by the Buyer in good faith, in accordance with
Section 1060 of the Code and the Treasury Regulations thereunder, and shall be
as set forth in a schedule produced by the Buyer and delivered to the Company
within one hundred twenty (120) days following the Closing Date (the “Allocation
Schedule”). The parties shall, and shall cause their respective Affiliates to,
use the allocations set forth in the Allocation Schedule (as reasonably adjusted
to account for events occurring after the determination of the Allocation
Schedule) for all Tax purposes, file all Tax Returns in a manner consistent with
such Allocation Schedule (as adjusted) and take no tax position contrary thereto
unless required to do so by a change in applicable Laws or a good faith
resolution of a Tax contest.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBER
Except as disclosed by the Company in the disclosure schedule, dated as of the
date of this Agreement and attached hereto (the “Company Disclosure Schedule”),
the Company and the Member, jointly and severally, hereby represent and warrant
to the Buyer as of the date hereof and as of the Closing Date as follows. The
Company Disclosure Schedule shall be arranged in sections corresponding to the
numbered and lettered sections and subsections contained in this Article III,
and the disclosures in any section or subsection of the Company Disclosure
Schedule shall qualify only the corresponding section or subsection of this
Article III.

 

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3.1 Organization, Good Standing and Qualification.
(a) The Company is duly organized and validly existing and in good standing
under the Laws of the State of Delaware.
(b) The Company is duly qualified or licensed as a foreign limited liability
company to do business and is in corporate and tax good standing under the Laws
of each jurisdiction where the character of the Acquired Assets or the nature of
the Business makes such qualification or licensing necessary, other than in
those jurisdictions where the failure to be so qualified would not have a
Business Material Adverse Effect. The Company has all requisite power and
authority and is in possession of all Approvals necessary, to own, lease and
operate the Acquired Assets and to carry on the Business as it is now being
conducted. Set forth in Section 3.1(b) of the Company Disclosure Schedule is a
list of (i) the jurisdictions in which the Company is qualified or licensed to
transact business, (ii) every state or foreign jurisdiction in which the Company
has employees or facilities and (iii) the sole member and officers of the
Company.
(c) The Company has delivered to the Buyer true and complete copies of the
Company’s Organizational Documents, as amended (if applicable) and in effect as
of the date hereof.
3.2 Subsidiaries and Investments. The Company has not had, nor does it currently
have, any Subsidiaries, nor has it ever owned, nor does it currently own, any
capital stock or other proprietary interest, directly or indirectly, in any
other Person.
3.3 Ownership of the Company. The entire membership percentage of the Company is
owned beneficially and of record by the Member, and, except as set forth in
Section 3.3 of the Company Disclosure Schedule, no other Person has at any time
held any membership or other equity interests of the Company. Except as
represented in the preceding sentence, there are no outstanding membership or
other equity interests of the Company or any options, warrants, calls, rights,
agreements, arrangements or undertakings of any kind (contingent or otherwise)
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, any membership or other equity interests or any other
securities of the Company.

 

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3.4 Authorization; Binding Obligation. The Company has all necessary power and
authority to execute and deliver this Agreement, each Related Agreement to which
it is a party and each other instrument or document required to be executed and
delivered by it pursuant to this Agreement or any such Related Agreement, and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by the
Company of this Agreement and the Related Agreement to which it is a party, the
performance of its obligations hereunder and thereunder and the consummation by
the Company of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite action on the part of the Company and no
other proceedings on the part of the Company are necessary to authorize this
Agreement or any Related Agreement to which it is a party or to consummate the
transactions so contemplated herein and therein. This Agreement has been, and
each of the Related Agreements to which the Company is a party, when executed
and delivered by the Company, will be, duly and validly executed and delivered
by the Company and constitute a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other Laws of general application affecting enforcement of creditors’ rights
generally and (ii) as limited by Laws relating to the availability of specific
performance, injunctive relief or other equitable remedies (together, the
“Enforceability Exceptions”).
3.5 Consents and Approvals. Except as set forth in Section 3.5 of the Company
Disclosure Schedule, the execution and delivery by the Company of this
Agreement, the Related Agreements to which the Company is a party or any other
instrument or document required by this Agreement or any Related Agreement to be
executed and delivered by the Company do not, and the performance of this
Agreement, the Related Agreements to which the Company is a party and any other
instrument or document required by this Agreement or any Related Agreement to be
executed and delivered by the Company shall not, require the Company to obtain
any Approval of any Person or Approval of, observe any waiting period imposed
by, or make any filing with or notification to, any Governmental Authority.
3.6 No Violation. Except as set forth in Section 3.6 of the Company Disclosure
Schedule, the execution and delivery by the Company of this Agreement, the
Related Agreements to which the Company is a party or any other instrument or
document required by this Agreement or any Related Agreement to be executed by
the Company do not, and the performance of this Agreement, the Related
Agreements to which the Company is a party or any other instrument or document
required by this Agreement or any Related Agreement to be executed and delivered
by the Company will not, (a) conflict with or violate the Organizational
Documents of the Company, (b) conflict with or violate any Law or Order
applicable to the Company, or (c) result in any material breach or violation of
or constitute a material default (or an event that with notice or lapse of time
or both would become a breach, violation or default) under, or impair the
Company’s rights or alter the rights or obligations of any third party under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the Acquired
Assets pursuant to, any Assigned Contract or any other material Contract to
which the Company is a party or is otherwise bound, or any Approval to which the
Company is a party or by which the Company or the Acquired Assets are bound or
affected.

 

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3.7 Business Licenses. Section 3.7 of the Company Disclosure Schedule contains a
true and complete list of all Approvals and Orders which are necessary for the
ownership or operation of the Acquired Assets or the Business, or that have been
issued, granted or otherwise made available to the Company, including any
Approvals from Governmental Authorities (the “Business Licenses”). Each Business
License is valid and in full force and effect, no Business License is subject to
any Lien, limitation, restriction, probation or other qualification and there is
no default under any Business License and, to the Knowledge of Company, no event
has occurred which constitutes or, after notice or lapse of time or both, would
constitute a breach or default under any of the Business Licenses or would
permit revocation or termination of any of the Business Licenses. Section 3.7 of
the Company Disclosure Schedule specifies the holder of each Business License.
There is no Action pending or, to the Knowledge of the Company, threatened that
could result in the termination, revocation, limitation, suspension, restriction
or impairment of any Business License or the imposition of any fine, penalty or
other sanctions for violation of any legal or regulatory requirements relating
to any Business License nor, to the Knowledge of the Company, is there any event
or set of circumstances which are reasonably likely to result therein. The
Company has all Approvals that are necessary in order to enable the Company to
own and operate the Acquired Assets and to conduct the Business as presently
conducted. None of the Business Licenses shall be affected by the consummation
of the transactions contemplated hereby. All Business Licenses are validly held
by the Company and the Company has complied and is in compliance, in each case
in all material respects, with the terms and conditions of each Business License
held by it. The Company has not received notice of any Action, and no such
Action is pending, relating to the cancellation, suspension, revocation,
modification or non-renewal of any Business License.
3.8 Title to and Condition of Properties; Sufficiency of Assets; Ownership of
Assets.
(a) Except as set forth in Section 3.8(a) of the Company Disclosure Schedule,
the Company is the sole and exclusive legal and equitable owner of all right,
title and interest in, and has good, valid and marketable title to, all of the
Acquired Assets purported to be owned by the Company, and the legal and valid
right to use all other Acquired Assets used or held for use by the Company, free
and clear of all Liens. The Company has the power and the right to sell, assign
and transfer, the Company will sell and deliver to the Buyer, and upon
consummation of the transactions contemplated by this Agreement the Buyer will
acquire, good, valid and marketable title to all of the Acquired Assets
purported to be owned by the Company and the valid, enforceable and sufficient
right to use all of the Acquired Assets, free and clear of all Liens.
(b) All tangible assets included in the Acquired Assets have been maintained in
accordance with normal industry practice and are in good operating condition and
repair, subject to ordinary wear and tear, and there has not been any
interruption of the operations of the Business due to the condition of any such
assets or properties. The Acquired Assets comprise all assets, properties,
rights and Contracts used in connection with the operation of the Business,
which are all of the assets, properties, rights and Contracts necessary for the
operation of the Business by the Buyer following the Closing in the manner in
which the Business is currently conducted. Except as set forth in Section 3.8(b)
of the Company Disclosure Schedule, no other Person, including the Member or any
Affiliate of the Company or the Member, owns or has the right to use any of the
assets or property used in connection with the operation of the Business.

 

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3.9 Real Property.
(a) The Company does not own and has never owned any real property.
Section 3.9(a) of the Company Disclosure Schedule sets forth a complete and
accurate list of: (i) all real property that is leased by the Company (the
“Leased Real Property”) and (ii) all leases and subleases to which the Company
is a party or is otherwise bound pursuant to which the Company leases or
subleases real property (the “Real Property Leases”). All Real Property Leases
are in full force and effect and are the legal, valid and binding obligations of
the Company and, to the Knowledge of the Company, of each other party thereto
enforceable in accordance with their respective terms, and neither the Company
nor, to the Knowledge of the Company, the other party or parties thereto is or
are in breach or default thereunder and there exists no event, condition or
occurrence which (with or without due notice or lapse of time, or both) would
constitute such a breach or default by the Company thereunder or, to the
Knowledge of the Company, by the other party or parties thereto of any of the
foregoing. Except as set forth in Section 3.9(a) of the Company Disclosure
Schedule, no consent of, or notice to, any third party is required under any
Real Property Lease as a result of or in connection with, and the enforceability
of any such Real Property Lease will not be affected by, the execution, delivery
and performance of this Agreement or any Related Agreement, or the transactions
contemplated hereby or thereby. The Company has delivered to the Buyer true and
complete copies of all Real Property Leases, including all amendments thereto.
(b) Except as set forth in Section 3.9(b) of the Company Disclosure Schedule,
the Company holds all Leased Real Property free and clear of all Liens, claims
or rights of any third parties, and the possession of the Leased Real Property
(collectively, the “Premises”) by the Company has not been disturbed and no
claim has been asserted against the Company adverse to its rights in such
Premises. All improvements, fixtures and structures on the Premises, and the
current uses of the Premises, conform in all material respects to all applicable
Laws, including building, zoning, health, safety and other Laws, and applicable
zoning Laws permit the presently existing improvements and the conduct and
continuation of the Business as being conducted on the Premises. All
improvements, mechanical equipment, fixtures and operating systems included in
the Premises are in good operating condition and repair (ordinary wear and tear
excepted) and there does not exist any condition which materially interferes
with the use of such property and improvements.
(c) The Company has not granted any leases or licenses, nor created any
tenancies, affecting the Premises. There are no other parties in possession of
any portion of the Premises as trespassers or otherwise.
(d) The Company is not a party to or is not otherwise bound by, nor is any of
the Premises subject to, any Contract requiring it to pay any commissions or
other compensation to any brokers or agents in connection with any of the
Premises, and has had no dealings with any broker or agent with respect to the
Premises upon which any such broker or agent would be entitled to a commission
or other compensation.
(e) To the Knowledge of the Company, (i) there are no Laws or Orders now in
existence or, to the Knowledge of the Company, under active consideration by any
Governmental Authority which would require the tenant of any Leased Real
Property to make any expenditure in excess of $10,000 to modify or improve such
Leased Real Property to bring it into compliance therewith and (ii) the Company
is not required to expend more than $10,000 in the aggregate under all Real
Property Leases to restore the Leased Real Property at the end of the term of
the Real Property Leases to the condition required under the Real Property
Leases (assuming the conditions existing in such Leased Real Property as of the
date hereof).

 

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3.10 Personal Property Leases. Section 3.10 of the Company Disclosure Schedule
sets forth a complete and accurate list of all personal property that is leased
by the Company (the “Leased Personal Property” and, the leases covering the
Leased Personal Property, collectively, the “Personal Property Leases”). The
Company is the owner and holder of the leasehold interests purported to be
granted by each Personal Property Lease, and all Personal Property Leases are in
full force and effect in accordance with the terms thereof and are the legal,
valid and binding obligations of the Company and, to the Knowledge of the
Company, of each other party thereto enforceable in accordance with their
respective terms, and neither the Company nor, to the Knowledge of the Company,
the other party or parties thereto is or are in material breach or default
thereunder and there exists no event, condition or occurrence which (with or
without due notice or lapse of time, or both) would constitute such a breach or
default by the Company thereunder or, to the Knowledge of the Company, by the
other party or parties thereto of any of the foregoing. Except as set forth in
Section 3.10 of the Company Disclosure Schedule, no consent of, or notice to,
any third party is required under any Personal Property Lease as a result of or
in connection with, and the enforceability of any such Personal Property Lease
will not be affected by, the execution, delivery and performance of this
Agreement or any Related Agreement, or the transactions contemplated hereby or
thereby. The Company has delivered to the Buyer complete and accurate copies of
all Personal Property Leases, including all amendments thereto.
3.11 Environmental Matters.
(a) The Company has materially complied and is in material compliance with all
Environmental Laws, which compliance includes the possession by the Company of
all Approvals required under Environmental Laws and material compliance with the
terms and conditions thereof. Section 3.11(a) of the Company Disclosure Schedule
includes a list of all of the Approvals required under Environmental Laws
necessary to own and operate the Acquired Assets or the Business as currently
conducted and contemplated to be conducted. There are no past or present facts,
circumstances, conditions, activities or incidents, including release of any
Materials of Environmental Concern at any facilities owned or operated by the
Company, which could give rise to any material Liability or result in a claim
against the Company or the Buyer under any Environmental Law. There have been no
releases by the Company or any of its predecessors or Affiliates of any
Materials of Environmental Concern into the environment at any real property or
facility formerly or currently owned or operated by the Company or any of its
predecessors, or that is or was ever used by the Company or any of its
predecessors. The Company does not have Knowledge of any release by any other
Person of any Materials of Environmental Concern into the environment at any
parcel of real property or any facility formerly or currently operated or
occupied by the Company that is or was ever used by the Company. There is no
Action pending or, to the Knowledge of the Company, threatened or other notice
of violation, formal administrative proceeding or written information request by
any Governmental Authority, nor has the Company received notice of any
investigation by any Governmental Authority relating to any Environmental Law
nor any other notice from a Governmental Authority or any other Person alleging
that the Company is not in compliance with any Environmental Law or Approval
required under any Environmental Law or has any Liability under any
Environmental Law or for the remediation of any Materials of Environmental
Concern at any property.

 

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(b) Set forth in Section 3.11(b) of the Company Disclosure Schedule is a
complete and accurate list of all environmental reports, investigations or
audits (whether in hard copy or electronic form) relating to premises currently
or previously owned, operated or occupied by the Company or any of its
predecessors or Affiliates (whether conducted by or on behalf of the Company or
any of its predecessors or Affiliates or a third party, and whether done at the
initiative of the Company or a predecessor or an Affiliate or directed by a
Governmental Authority or other third party) of which the Company is aware. A
complete and accurate copy of each such document has been provided to the Buyer.
3.12 Financial Statements; No Undisclosed Liabilities.
(a) Section 3.12 of the Company Disclosure Schedule contains the following
financial statements (collectively, the “Financial Statements”):
(i) the unaudited balance sheet of the Company as of May 31, 2011 (the “Interim
Balance Sheet”) and the related statements of income for the five-month period
then ended; and
(ii) the unaudited balance sheet of the Company as of December 31, 2010
(including Default Servicing, Inc. from January 1, 2010 to January 15, 2010),
and the related statement of income for the respective twelve (12) month period
then ended.
(b) The Financial Statements were prepared in accordance with the books and
records of the Company, in accordance with GAAP, consistently applied, except
for the absence of complete footnote disclosure as required by GAAP. The
Financial Statements present fairly in accordance with GAAP the financial
condition of the Company as of the dates indicated and the results of operations
of the Company for the respective periods indicated, subject to changes
resulting from normal, recurring period-end audit adjustments, which adjustments
shall not be material. The Financial Statements reflect the consistent
application of GAAP throughout the periods involved.
(c) Except as and to the extent the amounts are specifically accrued or
disclosed in the Interim Balance Sheet, the Company does not have any
Liabilities, whether or not required by GAAP to be reflected in the Interim
Balance Sheet, except for (a) Liabilities under an executory portion of a
Contract, (b) Liabilities for costs and expenses incurred in connection with the
transactions contemplated by this Agreement, and (c) Liabilities that were
incurred in the ordinary course of business consistent with past practice since
the date of the Interim Balance Sheet.
(d) Except as set forth in Section 3.12(d) of the Company Disclosure Schedule,
the Company does not have any outstanding Indebtedness and as of the Closing,
all Liens on the Acquired Assets will be discharged.

 

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3.13 Absence of Certain Events. Except as set forth in Section 3.13 of the
Company Disclosure Schedule, since April 30, 2011, the Company has conducted the
Business only in the ordinary and usual course and in a manner consistent with
past practice and there has not been any change, event, loss, development,
damage or circumstance affecting the Acquired Assets or the Business which,
individually or in the aggregate, has had or could reasonably be expected to
have a Business Material Adverse Effect (a “Business Material Adverse Change”).
As amplification and not in limitation of the foregoing, since April 30, 2011,
the Company has not:
(a) incurred any material decrease in the value of any of the Acquired Assets;
(b) suffered any loss to its property or asset used in connection with or
related to the operation of the Business, or incurred any liability, damage,
award or judgment for injury to the property or business of others or for injury
to any person (in each case, whether or not covered by insurance) in excess of
$10,000 in any one case or $25,000 in the aggregate;
(c) made any capital expenditure or commitment in excess of $10,000 or series of
capital expenditures or commitments in excess of $25,000 in the aggregate;
(d) made any assignment, termination, modification or amendment of any Contract
to which the Company was or is a party or which otherwise related to the
Business, or any account receivable relating thereto, whether as a security
interest or otherwise;
(e) made any change in the rate of compensation, commission, bonus or other
direct or indirect remuneration payable or to become payable to any Company
Employee, or agreed to pay any bonus or extra compensation or other employee
benefit to any Company Employee;
(f) paid, discharged or satisfied, in any amount in excess of $10,000 in any one
case, or $25,000 in the aggregate, any Liability arising from the operation of
the Business, other than payments made in the ordinary course of business of
Liabilities reflected or reserved against in the Interim Balance Sheet or
Liabilities incurred since that date in the ordinary course of business
consistent with past practice;
(g) made any change in the accounting principles adopted by the Company, or any
change in the Company’s accounting policies, procedures, practices or methods
with respect to applying such principles, other than as required by GAAP;
(h) sold, assigned, leased or transferred any assets (tangible or intangible) or
properties, other than sales of inventory in the ordinary course of business;
(i) amended its Organizational Documents;
(j) made any Tax election, changed any annual Tax accounting period, amended any
Tax Return, settled any income Tax Liability, entered into any closing
agreement, settled any Tax claim or assessment, surrendered any right to claim a
Tax refund or consented to any extension or waiver of the limitations period
applicable to any Tax claim or assessment;
(k) acquired or agreed to acquire by merging or consolidating with, or by
purchasing a substantial portion of the capital stock or assets of, or by any
other manner, any business or any corporation, partnership, limited liability
entity, joint venture, association or other business organization;

 

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(l) terminated the employment (or other form of engagement) or expressed any
intention to terminate the employment (or other engagement) of any employee of
the Company;
(m) incurred, assumed or created any Indebtedness or guaranteed any Indebtedness
of any other Person, or made, incurred, assumed, created or guaranteed any loan
or made any advance or capital contribution to or investment in any Person;
(n) cancelled or forfeited any debts or claims, waived or released any rights or
claims of material value to the Company or settled any Action;
(o) granted any license or sublicense of any rights under or with respect to, or
sold, transferred or permitted to lapse, any Intellectual Property;
(p) entered into, terminated or received notice of termination of (1) any
distributorship, sales or service representative, credit, or similar agreement
to which the Company is a party, or (2) any Contract or transaction, other than
purchase orders in the ordinary course of business, involving a total remaining
commitment by or to the Company of at least $50,000;
(q) suffered a loss of (1) a client which has purchased at least $100,000 of
products or services from the Company, or (2) a vendor which has supplied at
least $100,000 of products or services to the Company;
(r) written-off any accounts receivable of the Company or any portion thereof in
excess of $10,000 individually or $25,000 in the aggregate, or any sale,
assignment or disposition of any account receivable;
(s) made any material change in the manner in which the Company extends or
receives discounts or credit from customers or suppliers; or
(t) entered into any agreement, understanding, authorization or proposal,
whether in writing or otherwise, for the Company to take any of the actions
specified in this Section 3.13.
3.14 Legal Proceedings.
(a) Except as set forth in Section 3.14(a) of the Company Disclosure Schedule,
there is no Action pending or, to the Knowledge of the Company, threatened
against the Company or any of its officers (in their capacities as such), and
the Company has not received any claim, complaint, incident, report, threat or
notice of any such Action, nor does the Company know of any event or set of
circumstances which are reasonably likely to result in an Action, the result of
which could materially adversely affect the Company or the Acquired Assets.
(b) Section 3.14(b) of the Company Disclosure Schedule sets forth all Actions
that (i) involved the Company at any time during the past three (3) years and
(ii) are no longer pending (the “Prior Actions”). All of the Prior Actions have
been concluded in their entirety and the Company does not have and will not have
any Liability with respect to the Prior Actions. The Company has provided to the
Buyer all formal written communications relating to any Prior Actions between
the Company and a Governmental Authority and any Orders related thereto.

 

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(c) There are no outstanding Orders against or involving or affecting the
Company, the Business or the Acquired Assets, and the Company is not in default
with respect to any such Order of which it has Knowledge or which has been
served upon it.
(d) Except as set disclosed to the Buyer in connection with this Agreement, the
Company has not received any material, written communication or advice from
outside legal counsel to the effect that it is exposed, from a legal standpoint,
to any Liability relating to the ownership or operation of the Acquired Assets
or the Business.
3.15 Compliance with Laws. Except as set forth in Section 3.15 of the Company
Disclosure Schedule, the Company has complied and is in compliance, in each case
in all material respects, with all Laws applicable to it, the Acquired Assets
and the Company’s ownership, use or operation thereof, and to the operation of
the Business. The Company has not received any notice, citation, summons or
order to the effect that it is not in compliance with any such Laws. No
investigation or review by any Governmental Authority with respect to the
Company or the Business, or, to the Knowledge of the Company, the Company’s
sales agents or other representatives is pending or, to the Knowledge of the
Company, threatened, nor has any Governmental Authority indicated to the Company
or its Affiliates an intention to conduct the same.
3.16 Employment Matters.
(a) Section 3.16(a) of the Company Disclosure Schedule sets forth a complete and
accurate list of all current Company Employees as of the date hereof and each
such Company Employee’s (i) rate of pay or annual compensation (including actual
or potential bonus payments and the terms of any commission payments or
programs), (ii) title(s), and (iii) status and location of employment or
engagement. Section 3.16(a) of the Company Disclosure Schedule sets forth all
employment, consulting, independent contractor, severance pay, continuation pay,
termination or indemnification Contracts between the Company and any current or
former Company Employee or under which the Company may have any Liability (each,
an “Employee Agreement”).
(b) The Company is not and, as of the Closing Date, will not be delinquent in
payments to any Company Employee for any wages, salaries, commissions, bonuses,
benefits or other compensation for any services performed by them to date or
through the Closing Date. Section 3.16(b) of the Company Disclosure Schedule
sets forth a list of all outstanding loans or advances to Company Employees.
(c) Neither the Company nor, to the Knowledge of the Company, any Company
Employee, is in violation of any term of any employment, consulting, independent
contractor, non-disclosure, non-competition, inventions assignment or any other
Contract (or any other legal obligation such as a trade secrets statute or
common law duty of loyalty) relating to the relationship of such Company
Employee with the Company or any other Person or has been notified that such
Company Employee may be in violation of any such Contract or other legal
obligation.

 

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(d) The Company is not, and has never been, party to any collective bargaining
Contract or other Contract with any labor unions or other representatives of the
Company Employees nor is it under any obligation to bargain with any bargaining
agent on behalf of any Company Employees. To the Knowledge of the Company, there
have not been any organization campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Business.
(e) Section 3.16(e) of the Company Disclosure Schedule sets forth a complete and
accurate list of each Employee Benefit Plan under which current or former
Company Employees (or their beneficiaries) are eligible to participate or derive
a benefit or for which the Acquired Assets may be subject to any Liability.
Neither the Company nor any ERISA Affiliate has any plan or commitment to
establish any new Employee Benefit Plan, to modify any Employee Benefit Plan
(except to the extent required by Law or to conform any such Employee Benefit
Plan to the requirements of any applicable Law, in each case as previously
disclosed to the Buyer in writing, or as required by this Agreement), or to
adopt or enter into any Employee Benefit Plan. Neither the Company nor any ERISA
Affiliate has ever maintained, established, sponsored, participated in,
contributed to, or otherwise incurred any obligation or liability (including
contingent liability) under any “multiemployer plan” (as defined in
Section 3(37) of ERISA) or an arrangement subject to Section 501(c)(9), 419 or
419A of the Code, or a “pension plan” (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code, a self insured plan
providing medical benefits or a plan providing for medical or life insurance
coverage beyond termination of employment (other than COBRA coverage or under
similar state Laws). Neither the Company nor any ERISA Affiliate has at any time
ever maintained, established, sponsored, participated in or contributed to any
multiple employer plan or to any plan described in Section 413 of the Code.
Neither the Company nor any ERISA Affiliate has any actual or potential
withdrawal liability (including any contingent liability) for any complete or
partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any
multiemployer plan.
(f) The Company and its ERISA Affiliates have performed all material obligations
required to be performed by them under, are not in material breach, default or
violation of, and have no Knowledge of any breach, default or violation by any
other party to each Employee Benefit Plan, and all Employee Benefit Plans have
been established and maintained in material compliance with the terms thereof
and requirements prescribed by any and all Laws (including ERISA and the Code)
and Orders currently in effect with respect thereto.
(g) The Company has complied in all material respects with all its obligations
under Law with respect to the employment or engagement of all Company Employees,
including with respect to employment practices, terms and conditions of
employment, wage and hours, and the health and safety at work of their
employees, and there are no claims pending or, to the Knowledge of the Company,
threatened by any person in respect of employment or engagement or any accident
or injury.

 

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3.17 No Brokers. Except as set forth in Section 3.17 of the Company Disclosure
Schedule, neither the Company, or any of its employees, officers, managers or
agents, nor the Member, has employed or engaged, either directly or indirectly,
or incurred or will incur any Liability to, any broker, finder, investment
banker or other agent in connection with the transactions contemplated by this
Agreement.
3.18 Taxes.
(a) All Taxes payable by the Company have been timely paid, or, to the extent
not required to have been paid, have been accrued in the Interim Balance Sheet;
all federal, state, local and foreign Tax Returns required to be filed by or on
behalf of the Company with respect to any such Taxes have been timely filed, and
all such Tax Returns are complete and correct and have been filed in accordance
with all applicable Law; all Taxes that the Company is or was required by Law to
have withheld or collected, have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental Authority; no unpaid
Tax deficiency has been asserted against or with respect to the Company and the
Company has not received notice of any such assertion; there are no Actions
pending with respect to any Taxes for which the Company is liable; the Company
has not been informed by any jurisdiction that such jurisdiction believes that
the Company is or was required to file any Tax Return that was not filed. The
Company has not executed or entered into any ruling or agreement with any
Governmental Authority regarding Taxes or has agreed to make any adjustment to
its income or deductions pursuant to a change in its method of accounting.
(b) The Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, and no withholding pursuant
to Section 1445 of the Code will be required in connection with this Agreement
or the transactions contemplated hereby.
(c) There are no Liens with respect to Taxes upon any of the Acquired Assets.
There is no basis for the assertion of any claims for Taxes which, if adversely
determined, would result in the imposition of any Lien on the Acquired Assets.
(d) The Company has not been audited by the IRS or relevant state tax
authorities. No Tax Return of the Company is currently being audited by any
Governmental Authority and no examination or audit of any such Tax Return is
currently threatened in writing by any Governmental Authority.
3.19 Contracts.
(a) Section 3.19 of the Company Disclosure Schedule sets forth a complete and
accurate list of all of the following Contracts to which the Company is a party
or is otherwise bound or to which any of the Acquired Assets are subject (and
with respect to any oral Contract provides a complete description of the terms
of such Contract) (the “Scheduled Contracts”):
(i) all notes, loans, credit agreements, mortgages, indentures, security
agreements, operating leases, capital leases and other Contracts relating to
Indebtedness and any Contract of suretyship or guaranty;

 

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(ii) all employee agreements, Contracts with consultants and independent
contractors, and all bonus, commission, compensation, pension, insurance,
retirement, deferred compensation and other plans, Contracts and other
arrangements for the benefit of any Company Employee;
(iii) all Contracts involving an annual payment to or by the Company from or to
any Person in excess of $10,00 individually or $25,000 in the aggregate with
respect to all Contracts with such Person;
(iv) all Contracts for capital expenditures in excess of $10,000 individually
for any Person or $25,000 in the aggregate for all Contracts with such Person;
(v) all client Contracts for the purchase of products or services from the
Company;
(vi) all Contracts with sales agents or other representatives;
(vii) all Contracts for the purchase or sale of any asset or property of the
Company in excess of $10,000 individually for any Person or $25,000 in the
aggregate for all Contracts with such Person;
(viii) all joint venture, partnership or other Contracts involving a share of
profits or losses with another Person;
(ix) all Contracts with any Affiliate, officer or Member of the Company or any
family member or Affiliate of any officer or Member;
(x) all Contracts pursuant to which the Company has granted or received
manufacturing rights, most favored nation pricing provisions or exclusive
marketing, sales or other rights relating to any product, service, technology,
asset or territory;
(xi) all sales, agency, representative, distributor, franchise or similar
Contracts;
(xii) all Contracts that limit or purport to limit the ability of the Company to
compete in any line of business or with any Person or in any geographic area or
during any period of time;
(xiii) any material Contract which is terminable upon or prohibits a sale of
substantially all of the assets of the Company;
(xiv) all Contracts granting or permitting any Lien on any of the Acquired
Assets;
(xv) all Contracts with vendors, suppliers, manufacturers or contractors; and
(xvi) any other Contracts that are material to the Company and have not been
previously disclosed pursuant to this Section 3.19.

 

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(b) The Company has delivered to the Buyer true and complete copies of all
Assigned Contracts and Scheduled Contracts, including all amendments thereto.
The Company is not in material breach or default under the terms of any Assigned
Contract and there exists no event, condition or occurrence which (with or
without due notice or lapse of time, or both) would constitute such a material
breach or default by the Company, nor has the Company received any notice of any
material breach or default or alleged breach or default under any Assigned
Contract. To the Knowledge of the Company, no other party to any Assigned
Contract is in material breach or default under the terms thereof, and, to the
Knowledge of the Company, there exists no event, condition or occurrence which
(with or without due notice or lapse of time, or both) would constitute such a
material breach or default by any such party, nor has the Company received any
notice of any breach or default by any such party.
(c) The Assigned Contracts are in full force and effect and are valid and
binding obligations of the Company and, to the Knowledge of the Company, the
other parties thereto. The Company has not received any notice from any other
party to an Assigned Contract of the termination or threatened or anticipated
termination thereof, or of any claim, dispute or controversy with respect
thereto, nor does the Company Know of any event or set of circumstances which
are reasonably likely to result therein. No party to an Assigned Contract has
(i) alleged any failure to perform on the part of the Company or (ii) made any
claims against, or sought indemnification from, the Company as to any matter
arising under or with respect to such Assigned Contract, and, to the Knowledge
of the Company, neither the Company nor the Member or any of the Company’s
officers has been advised that any such claims may be asserted or initiated.
(d) Except as set forth in Section 3.19(d) of the Company Disclosure Schedule,
no consent of, or notice to, any third party is required under any Assigned
Contract as a result of or in connection with, and neither the enforceability
nor any of the terms or provisions of any Assigned Contract will be affected in
any manner by, the execution, delivery and performance of this Agreement or any
Related Agreement, or the transactions contemplated hereby or thereby.
(e) With respect to any Assigned Contract, (i) the acceptance of any
deliverables has not been contested; (ii) there are no outstanding requests for
the removal of any of the Company’s personnel from performing services under the
Contract; (iii) no penalties of any type have been assessed; and (iv) there are
no pending or, to the Knowledge of the Company, threatened, contract suspension,
scope reduction or curtailment actions.
3.20 Transactions With Affiliates. Except as set forth in Section 3.20 of the
Company Disclosure Schedule, no current or former manager, officer, member or
employee of the Company or, to the Knowledge of the Company, any member of any
such Person’s family, is a party to any transaction with the Company (including
any Contract providing for the employment of, furnishing of goods or services
by, rental of real or personal property from, borrowing money from or lending
money to, or otherwise requiring payments to, any such Person, but excluding
payments for normal salary and bonuses and reimbursement of expenses) or, to the
Knowledge of the Company, the direct or indirect owner of an interest in any
Person which is a present or potential competitor, supplier or client of the
Company and, to the Knowledge of the Company, no such Person receives income
from any source other than the Company which relates to the Business of, or
should properly accrue to, the Company.

 

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3.21 Insurance. The Company, the Business and the Acquired Assets are, and will
through the Closing Date be, insured with reputable insurers against risks
normally insured against by similar businesses under similar circumstances.
Section 3.21 of the Company Disclosure Schedule lists, by type, carrier, policy
number, limits, premium and expiration date, all insurance coverage carried by
the Company, together with a history of all claims made by the Company
thereunder since January 15, 2010, which insurance, except as described on
Section 3.21 of the Company Disclosure Schedule, will remain in full force and
effect in accordance with policy terms, with respect to all events occurring
prior to the Closing Date. Section 3.21 of the Company Disclosure Schedule also
states whether each such policy is carried on a “claims made” or “occurrence”
basis. All premiums with respect to such insurance required to be paid are
currently paid and will be paid through the Closing Date. The Company has not
failed to give any notice of any claim under any such policy in due and timely
fashion, has not received notice of cancellation or non-renewal of any such
policy and has no Knowledge of any threatened or proposed cancellation or
non-renewal of any such policy, and the Company is otherwise in compliance with
the terms of such policies. The Company has never maintained, established,
sponsored, participated in or contributed to any self-insurance plan. There are
no outstanding claims by the Company under any such policy which have gone
unpaid for more than thirty (30) days, or as to which the insurer has disclaimed
liability. The Company has not been denied or had revoked, cancelled,
non-renewed or rescinded any policy of insurance.
3.22 Intellectual Property.
(a) Section 3.22(a) of the Company Disclosure Schedule sets forth a complete and
accurate list of all United States and foreign Trademarks (including
unregistered Trademarks), and Internet domain names comprising Company
Intellectual Property, indicating for each, the applicable jurisdiction,
registration number (or application number) and date issued (or date filed). The
Company has neither any registered or unregistered Patents or Copyrights, nor is
in process of applying for any Patents or Copyrights. All registered and applied
for Trademarks included in the Company Intellectual Property are currently
pending, in material compliance with all legal requirements (including the
timely filing of responses, statements or affidavits of use and incontestability
and renewal applications and required fees with respect to Trademarks), are
valid and enforceable, and are not subject to any fees, responses or actions
falling due within one hundred eighty (180) days after the Closing Date. No such
Trademark or Design has been or is now involved in any cancellation proceeding
before the United States Patent and Trademark Office (the “USPTO”) and, to the
Knowledge of the Company, no such Action is threatened with respect to any of
such Trademarks. All Trademarks included in the Company Intellectual Property
have been in continuous use by the Company since they were first used by the
Company. To the Knowledge of the Company, there has been no prior use of such
Trademarks by any Person which would confer upon such Person superior rights in
such Trademarks, respectively; and the registered Trademarks have been
continuously used in the form appearing in, and in connection with the goods and
services listed in, their respective registration certificates or identified in
their respective pending applications. To the Knowledge of the Company, there
are no Trademarks of any third party potentially conflicting with the Trademarks
included in the Company Intellectual Property.

 

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(b) Section 3.22(b) of the Company Disclosure Schedule sets forth a complete and
accurate list of all license agreements granting any right to use or practice
any rights under any Company Intellectual Property (“Licensed Intellectual
Property”), whether the Company is the licensee or licensor thereunder, and any
assignments, consents, forbearances to sue, judgments, orders, settlements,
indemnification or similar obligations relating to any Licensed Intellectual
Property to which the Company is a party or otherwise bound (collectively, the
“License Agreements”), indicating for each the title, the parties, the date
executed, whether or not it is exclusive and the Licensed Intellectual Property
covered thereby. The License Agreements are valid and binding obligations of the
Company and to the Company’s Knowledge, of each other party thereto enforceable
in accordance with their respective terms, and neither the Company nor, to the
Knowledge of the Company, the other party or parties thereto is or are in
material breach or default thereunder, and there exists no event, condition or
occurrence which (with or without due notice or lapse of time, or both) would
constitute such a breach or default by the Company thereunder or, to the
Knowledge of the Company, by the other party or parties thereto of any of the
foregoing. Except as set forth in Section 3.22(b) of the Company Disclosure
Schedule, no consent of, or notice to, any Person is required under any License
Agreement as a result of or in connection with, and the terms or enforceability
of any License Agreement will not be affected by, the execution, delivery and
performance of this Agreement or the Related Agreement, or the transactions
contemplated hereby or thereby. The Company has not received any notice of
termination or cancellation under any License Agreements.
(c) The Company Intellectual Property constitutes all of the Intellectual
Property used in or necessary for the conduct of the Business as currently
conducted, including all Intellectual Property necessary to use, manufacture,
market and distribute the Company Services.
(d) No royalties, honoraria or other fees are payable to any third parties for
the use of or right to use any Company Intellectual Property except pursuant to
the License Agreements set forth in Section 3.22(d) of the Company Disclosure
Schedule. All inventions, discoveries, Trade Secrets, ideas and works, whether
or not patented or patentable or otherwise protectable under Law, created,
prepared, developed or conceived by employees or independent contractors of the
Company are the exclusive property of the Company and were either created,
prepared, developed or conceived by (i) employees of the Company within the
scope of their employment or (ii) by independent contractors who have duly
assigned their rights to the Company pursuant to enforceable written agreements.
(e) Except as set forth in Section 3.22(e) of the Company Disclosure Schedule,
the Company (i) owns exclusively all Company Intellectual Property purported to
be owned by the Company, and (ii) has a valid, enforceable, freely transferable
and sufficient right to use for the purposes as the Company has previously used,
all Licensed Intellectual Property, free and clear of all Liens.

 

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(f) The operation of the Business as currently conducted, the sale or use of the
Company Services, and the use of the Company Intellectual Property in connection
therewith has not, does not and will not, when conducted in substantially the
same manner following the Closing, infringe upon, violate, misappropriate or
make unlawful use of any Intellectual Property or other rights of any other
Person or constitute unfair trade practices. The Company has not received notice
of any allegation that the use of any Company Intellectual Property or the
conduct of the Business as currently conducted would infringe upon, violate,
misappropriate or make unlawful use of any Intellectual Property or other rights
of any other Person, nor is the Company aware of any basis for such a claim. To
the Knowledge of the Company, no Person is misappropriating, infringing,
violating or making unlawful use of any Company Intellectual Property, nor is
the Company aware of any basis for such a claim. There is no Action pending or,
to the Knowledge of the Company, threatened alleging that the conduct of the
Business infringes upon, violates or constitutes the unauthorized use of the
Intellectual Property or other rights of any other Person, nor is the Company
aware of any basis for such a claim. The Company has not threatened to bring,
and the Company has not brought, any Action regarding the ownership, use,
validity or enforceability of any Company Intellectual Property.
(g) The consummation of the transactions contemplated hereby will not result in
the loss or impairment of any Company’s ownership or other rights in and to any
of the Company Intellectual Property or under any of the License Agreements,
require the Company to grant to any third party any right to any Company
Intellectual Property or obligate the Company to pay any royalties or other
amounts to any third party in excess of any amounts payable to such third
parties prior to the Closing, nor will the consummation of the transactions
contemplated hereby require the approval or consent of any Governmental
Authority or other Person in respect of any Company Intellectual Property.
(h) Section 3.22(h) of the Company Disclosure Schedule lists all Software (other
than off-the-shelf or shrink wrap software) which is owned, licensed or
otherwise used by the Company and indicates whether such Software is subject to
an escrow agreement and/or license agreement and, if so, indicates where such
Software is held in escrow and identifies such license agreement. No rights in
the Software have been transferred to any third party.
(i) Section 3.22(i) of the Company Disclosure Schedule lists all Software or
other material that is distributed as Open Source Software or “free software” in
connection with the operation of the Business (the “Open Source Materials”). All
of the Open Source Materials used by the Company in connection with the Acquired
Assets or the Licensed Software have been used in compliance with the terms of
each respective license. The Company has not used Open Source Materials that
create, or purport to create, obligations for the Company with respect to the
Acquired Assets or the Business or grant, or purport to grant, to any third
party, any rights or immunities under any Company Intellectual Property
(including, but not limited to, using any Open Source Materials that require, as
a condition of use, modification or distribution of the Open Source Materials
that other Software incorporated into, derived from or distributed with the Open
Source Materials be (x) disclosed or distributed in source code form, (y) be
licensed for the purpose of making derivative works or (z) be redistributable at
no charge).

 

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(j) The Company has taken all reasonable steps in accordance with normal
industry practice to protect the Company Intellectual Property, including all
rights in confidential information and Trade Secrets included in the Company
Intellectual Property. Except pursuant to enforceable confidentiality
obligations in favor of the Company, there has been no disclosure to any third
party of any confidential information or Trade Secrets included in the Company
Intellectual Property. No current or former employee, consultant, contractor,
partner or investor of the Company is in unauthorized possession of any of the
Trade Secrets or Software included in the Company Intellectual Property.
(k) Section 3.22(k) of the Company Disclosure Schedule describes all databases
used by the Company (the “Databases”). Following the Closing, the Databases will
have at least the same information and functionality as exists prior to the
Closing. No Person (other than the Company) has any right, title or interest in
or to any of the information contained in any of the Databases and the Company
has not sold, assigned, leased, transferred, permitted the use of or otherwise
disclosed to any Person any information contained in any of the Databases,
including any Personally Identifiable Information. The Company has complied and
is in compliance with all applicable privacy Laws, and all information contained
in the Databases has been collected, used and maintained in accordance with all
applicable privacy Laws. Except as set forth in Section 3.22(k) of the Company
Disclosure Schedule, the Company has the right to sell and assign all of its
rights in and to the Databases and all information contained therein, and any
such sale and assignment will not violate any privacy policy applicable to any
Personally Identifiable Information contained therein at the time it was
collected.
3.23 [Reserved.]
3.24 Absence of Restrictions on Business Activities. There is no Contract or
Order binding upon the Company or any of the Acquired Assets which has had or
could reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company or the Buyer, any acquisition of property
(tangible or intangible) by the Company or the Buyer, the conduct of business by
the Company or the Buyer, or otherwise limiting the freedom of the Company to
engage in any line of business or to compete with any Person. Without limiting
the generality of the foregoing, the Company has not entered into any Contract
under which it is restricted, or under which the Buyer would be restricted
following the Closing, from selling, licensing, manufacturing or otherwise
distributing any Company Services or from providing services to customers or
potential customers or any class of customers, in any geographic area, during
any period of time, or in any segment of the market.
3.25 Certain Business Practices. Neither the Company nor any officer, employee
or agent of the Company on behalf of the Company, nor the Member, has: (a) used
any funds for unlawful contributions, gifts, entertainment or other unlawful
payments relating to political activity, (b) made any unlawful payment to any
foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or any similar applicable Law.
3.26 Anti-Terrorism Laws; Trading with the Enemy.
(a) The Company is not in violation of any Anti-Terrorism Law and has not
engaged in or conspired to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law.
(b) The Company has not engaged, nor does it intend to engage, in any business
or activity prohibited by the Trading with the Enemy Act.

 

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3.27 Books and Records. The books and records of the Company delivered or made
available to the Buyer are complete and accurate in all material respects and
reflect the assets, liabilities, prospects, business, financial condition and
results of operations of the Business and have been maintained in accordance
with prudent business practices. The minute books of the Company contain
accurate and complete records, in all material respects, of all meetings held
by, and actions taken by, the sole Member of the Company, and no meeting of the
Members has been held where material matters were approved, voted upon or acted
upon for which minutes have not been prepared and are not contained in such
minute books.
3.28 [Reserved.]
3.29 Relationships with Clients and Vendors.
(a) Section 3.29(a) of the Company Disclosure Schedule sets forth a list of each
client of the Company that has generated greater than $10,000 in revenue during
the Company’s 2009 or 2010 fiscal year (each, a “Material Client”). There are
not, and have not been, any material disputes with any Material Client. Except
as set forth in Section 3.29(a) of the Company Disclosure Schedule, no Material
Client has cancelled, terminated, or otherwise altered its relationship with the
Company nor has any current client of the Company notified the Company of any
intention to do so or otherwise threatened to cancel, terminate or materially
alter its relationship with the Company. There has been no material reduction in
the rate or amount of services provided to and paid by any current client of the
Company.
(b) Section 3.29(b) of the Company Disclosure Schedule sets forth a list of the
ten (10) largest vendors, by dollar volume, of the Company that has supplied to
the Company any product or service relating to the Business during the Company’s
2009 or 2010 fiscal year (each, a “Vendor”). There are not, and have not been,
any material disputes with any Vendor. Except as set forth in Section 3.29(b) of
the Company Disclosure Schedule, no Vendor has cancelled, terminated or
otherwise altered its relationship with the Company nor has any current vendor
of the Company notified the Company of any intention to do so or otherwise
threatened to cancel, terminate or materially alter its relationship with the
Company.
3.30 Solvency. Except as set forth in Section 3.30 of the Company Disclosure
Schedule, the Company (a) has sufficient capital to carry on the Business,
(b) is able to pay its debts as they mature, and (c) is solvent, and the value
of its assets, at a fair valuation, is greater than all of its debts. The
Company has not (i) made a general assignment for the benefit of creditors,
(ii) filed any voluntary petition in bankruptcy or suffered the filing of an
involuntary petition by any creditor, (iii) suffered the appointment of a
receiver to take possession of all or any portion of its assets, (iv) suffered
the attachment or judicial seizure of all or any portion of its assets,
(v) admitted in writing its inability to pay its debts as they come due or
(vi) made an offer of settlement, extension or composition to its creditors
generally.

 

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3.31 Disclosure. Neither this Agreement (including the exhibits and schedules
hereto) nor any other agreement, document or certificate delivered or to be
delivered to the Buyer by or on behalf of the Company pursuant to the terms of
this Agreement contains or will contain when made any untrue statement of a
material fact or omits or will omit when made to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. There is no fact within
the Knowledge of the Company that has not been disclosed in this Agreement and
which could reasonably be expected to have a Business Material Adverse Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MEMBER
Except as disclosed by the Member in the disclosure schedule, dated as of the
date of this Agreement and attached hereto (the “Member Disclosure Schedule”),
the Member hereby represents and warrants to the Buyer as of the date hereof and
as of the Closing Date as follows. The Member Disclosure Schedule shall be
arranged in sections corresponding to the numbered and lettered sections and
subsections contained in this Article IV, and the disclosures in any section or
subsection of the Member Disclosure Schedule shall qualify only the
corresponding section or subsection of this Article IV.
4.1 Organization; Good Standing and Qualification. The Member is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Delaware.
4.2 Authority; Execution; Enforceability. The Member has all necessary power and
authority to execute, deliver and perform its obligations under this Agreement
and each Related Agreement to which it is a party and to perform all of its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Member of
this Agreement, the performance of its obligations hereunder, and the
consummation by it of the transactions contemplated hereby have been duly and
validly authorized by all action on the part of the Member and, no other
proceedings on the part of the Member are necessary to authorize this Agreement
or to consummate the transactions so contemplated herein. This Agreement and
each Related Agreement to which such Member is, or will become, a party has been
duly executed and delivered by the Member and constitutes a legal, valid and
binding obligation of such Member, enforceable against the Member in accordance
with its respective terms, subject to Enforceability Exceptions.
4.3 Title to Company Membership Percentages. The Member is the record and
beneficial owner of, and has good and marketable title to, the entire membership
percentage of the Company.
4.4 Consents and Approvals. Except as set forth in Section 4.4 of the Member
Disclosure Schedule, the execution and delivery by the Member of this Agreement,
the Related Agreements to which it is a party or any instrument required by this
Agreement to be executed and delivered by the Member do not, and the performance
of this Agreement, the Related Agreements to which it is a party and any
instrument required by this Agreement to be executed and delivered by the Member
at the Closing, shall not, require the Member to obtain any Approval of any
Person or Approval of, observe any waiting period imposed by, or make any filing
with or notification to, any Governmental Authority, domestic or foreign.

 

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4.5 No Violation. Except as set forth in Section 4.5 of the Member Disclosure
Schedule, the execution and delivery by the Member of this Agreement, the
Related Agreements to which the Member is a party or any other instrument or
document required by this Agreement to be executed and delivered by the Member
do not, and the performance of this Agreement, the Related Agreements to which
the Member is a party or any other instrument or document required by this
Agreement to be executed and delivered by the Member, will not (a) conflict with
or violate the Organizational Documents of the Member, (b) conflict with or
violate any Law or Order, in each case, applicable to the Member or by which any
of the Acquired Assets are bound, or (c) result in any breach or violation of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under any Contract or Approval to which the Member is a
party or by which the Member or the Member’s properties are bound or affected.
4.6 Legal Proceedings. Except as set forth in Section 4.6 of the Member
Disclosure Schedule, there is no Action pending or, to the Knowledge of the
Member, threatened against or materially affecting the Member that would
(a) give any Person the right to enjoin or rescind the transactions contemplated
by this Agreement or (b) otherwise prevent the Member from (i) executing and
delivering this Agreement or the Related Agreements to which the Member is a
party or (ii) performing the Member’s obligations pursuant to, or observing any
of the terms and provisions of, this Agreement or the Related Agreements to
which the Member is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND HSCC
The Buyer and HSCC, jointly and severally, hereby represent and warrant to the
Company and the Member:
5.1 Organization; Good Standing and Qualification. Each of the Buyer and HSCC is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
5.2 Authorization; Binding Obligation. Each of the Buyer and HSCC has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Buyer of this Agreement,
the performance of its obligations hereunder, and the consummation by it of the
transactions contemplated hereby have been duly and validly authorized by all
action on the part of each of the Buyer and HSCC, and no other corporate
proceedings on the part of the Buyer or HSCC are necessary to authorize this
Agreement or to consummate the transactions so contemplated herein. This
Agreement has been duly and validly executed and delivered by each of the Buyer
and HSCC, and this Agreement constitutes a legal, valid, and binding obligation
of each of the Buyer and HSCC, enforceable against each of the Buyer and HSCC in
accordance with its terms, except as limited by the Enforceability Exceptions.

 

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5.3 Consents and Approvals. The execution and delivery by each of the Buyer and
HSCC of this Agreement does not, and the performance of this Agreement by each
of the Buyer and HSCC shall not, require the Buyer or HSCC to obtain any
Approval of any Person or Approval of, observe any waiting period imposed by, or
make any filing with or notification to, any Governmental Authority.
5.4 No Conflict. The execution and delivery by each of the Buyer and HSCC of
this Agreement, the Related Agreements to which the Buyer or HSCC, as
applicable, is a party or any other instrument or document required by this
Agreement to be executed and delivered by the Buyer or HSCC do not, and the
performance of this Agreement, the Related Agreements to which the Buyer or
HSCC, as applicable, is a party or any other instrument or document required by
this Agreement to be executed and delivered by the Buyer or HSCC will not
(a) conflict with or violate the respective Organizational Documents of the
Buyer or HSCC, (b) conflict with or violate any Law or Order applicable to the
Buyer or HSCC, or any of their respective properties or assets or (c) result in
a breach or violation of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under any material Contract to
which the Buyer or HSCC is a party, in any case, except where such conflict or
breach would not have a material adverse effect on the Buyer’s or HSCC’s ability
to consummate the transactions contemplated hereby.
5.5 No Brokers. Neither the Buyer nor HSCC has employed, either directly or
indirectly, nor incurred or will incur any Liability to, any broker, finder,
investment banker or other agent in connection with the transactions
contemplated by this Agreement.
5.6 Legal Proceedings. There is no Action pending or, to the knowledge of the
Buyer or HSCC, threatened by or against or affecting the Buyer or HSCC that
would (a) give any Person the right to enjoin or rescind the transactions
contemplated by this Agreement, or (b) otherwise prevent the Buyer or HSCC from
(i) executing and delivering this Agreement or (ii) performing the Buyer’s or
HSCC’s obligations pursuant to, or observing any of the terms and provisions of,
this Agreement.
ARTICLE VI

PRE-CLOSING COVENANTS
6.1 Access and Investigation.
(a) Between the date of this Agreement and the Closing Date, and upon reasonable
notice, the Company will, and the Member will cause the Company to, (a) afford
the Buyer and HSCC reasonable access, during regular business hours, to the
Company’s personnel, properties (including subsurface testing), Contracts,
Business Licenses, Books and Records and other documents and data, such rights
of access to be exercised in a manner that does not unreasonably interfere with
the operations of the Company; (b) furnish the Buyer with copies of all such
Contracts, Business Licenses, Books and Records and other documents and data as
the Buyer may reasonably request; (c) furnish the Buyer with such additional
financial, operating and other relevant data and information as the Buyer may
reasonably request; (d) make available (i) the officers and employees of the
Company for discussion of the Company’s businesses, properties or personnel and
(ii) all Company Employees for discussion of the post-Closing employment
arrangements with the Buyer as the Buyer may reasonably request; and
(e) otherwise cooperate and assist, to the extent reasonably requested by the
Buyer, with the Buyer’s investigation of the properties, assets and financial
condition related to the Company. No investigation pursuant to this Section 6.1
or otherwise shall affect any representations, warranties, covenants or
agreements of the Company or the Member set forth herein.

 

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6.2 Conduct of Business.
(a) Except as otherwise contemplated by this Agreement, during the period from
the date of this Agreement and continuing until the Closing Date, the Company
shall, and the Member agrees to cause the Company to, operate the Business in
the Ordinary Course of Business, and to use all commercially reasonable efforts
to:
(i) preserve the Business intact and conserve the goodwill related thereto;
(ii) preserve intact the present business organization of the Company and keep
available the services of the Company’s officers, agents and Company Employees;
(iii) to maintain in effect the Assigned Contracts; and
(iv) preserve present relationships with suppliers, customers, lenders and
others having business dealings with them.
(b) In connection with the foregoing, and without limiting the generality of
this Section 6.2, between the date hereof and the Closing Date, the Company
shall, and the Member shall cause the Company to:
(i) maintain the Acquired Assets in the Ordinary Course of Business in good
operating order and condition, reasonable wear and tear excepted;
(ii) continue to extend customers credit, collect receivables and pay accounts
payable and similar obligations and otherwise handle short-term assets and
liabilities in the Ordinary Course of Business;
(iii) maintain in full force and effect and in the same amounts policies of
insurance comparable in amount and scope of coverage to that now maintained by
or on behalf of the Company;
(iv) continue to maintain the Books and Records in accordance with GAAP;
(v) maintain its Business Licenses and continue to actively pursue Business
Licenses in process;

 

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(vi) continue its cash management practices in the Ordinary Course of Business;
(vii) confer with Buyer prior to implementing operational decisions of a
material nature; and
(viii) otherwise report periodically to the Buyer concerning the status of its
Business, operations and finances.
(c) Without the prior written consent of the Buyer, from the date of this
Agreement and continuing until the Closing Date, the Company shall not fail to
maintain in full force and effect all insurance currently in effect, hire or
terminate any employee, consultant or independent contractor, change the
compensation (including bonus or commission payments) payable or to become
payable to its Company Employees, or grant any severance or termination pay or
stock options to, or enter into or amend any Contract with any director, officer
or employee of the Company, or establish, adopt, enter into or amend any bonus,
compensation, stock or other equity option, deferred compensation, employment,
termination, severance or other plan, agreement or arrangement for the benefit
of any current or former Company Employee, or adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization.
(d) Without the prior written consent of the Buyer, from the date of this
Agreement and continuing until the Closing Date, and without limiting the
generality of any other provision of this Agreement, the Company shall not, and
the Member shall cause the Company not to (i) create, incur, suffer to exist or
assume any Lien on any of the Acquired Assets, (ii) pay, discharge, satisfy, or
settle any Action or waive, assign or release any material rights or claims
relating to any of the Acquired Assets or the Business, or commence any Action
against a customer of the Business or (c) take any affirmative action, or fail
to take any reasonable action within its control, as a result of which any of
the changes or events listed in Section 3.13 would be likely to occur.
6.3 Consents and Approvals; Regulatory Filings. The Company will, and the Member
will cause the Company to, use all commercially reasonable efforts and make
every good faith attempt to obtain, prior to the Closing Date, all Approvals
specified in Section 3.5 of the Company Disclosure Schedule.
6.4 Commercially Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the Parties shall use all commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or advisable to consummate the transactions provided for in
this Agreement and to satisfy or cause to be satisfied all of the conditions
precedent that are set forth in Article VIII, as applicable to each of them.
6.5 Update Schedules.
(a) Each of the Member and the Company shall, and the Member shall cause the
Company to, promptly disclose to the Buyer any information contained in its
representations and warranties or the Schedules which, because of an event
occurring after the date hereof, is incomplete or is no longer correct as of all
times after the date hereof until the Closing Date; provided, however, that none
of such disclosures shall be deemed to modify, amend or supplement the
applicable Disclosure Schedule for the purpose of determining the accuracy of
any of the representations and warranties made by the Company or the Member in
this Agreement, including for purposes of Article III, Article IV or Article IX
hereof, unless the Buyer shall have consented thereto in writing.

 

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(b) Without limiting the provisions of Section 6.5(a), prior to the Closing
Date, the Company shall, and the Member shall cause the Company to, give prompt
written notice to the Buyer of (i) any written notice or other communication
from any Person alleging that the consent of such Person is or may be required
in connection with the consummation of the transactions contemplated by this
Agreement, (ii) any written notice or other written communication from any
Governmental Authority in connection with any Approval regarding the
transactions contemplated by this Agreement, (iii) any Action commenced or
threatened in writing relating to or involving or otherwise affecting the
Business or the transactions contemplated by this Agreement, (iv) the occurrence
of a material breach or default or event that, with notice or lapse of time or
both, would or would reasonably be expected to constitute a material breach or
default under any Assigned Contract, (v) any material written notice or other
material communication from any Person pursuant to any Assigned Contract, and
(vi) any change, event or circumstance which would reasonably be expected to
delay or impede the ability of the Company or the Member to consummate the
transactions contemplated by this Agreement or to fulfill its obligations set
forth herein or that could reasonably be expected to have, individually or in
the aggregate, a Business Material Adverse Effect.
6.6 Exclusivity. The Company and the Member grant to the Buyer the exclusive
right to acquire the Acquired Business until the Final Termination Date. The
Company shall not, and the Member shall cause the Company not to, directly or
indirectly (a) solicit, initiate or encourage the submission of any proposal or
offer from any Person relating to the acquisition of the Acquired Business, or
any substantial portion of the assets of, the Company (including any acquisition
structured as a merger, consolidation or share exchange) or (b) participate in
any discussions or negotiations regarding, furnishing any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The Member
will notify the Buyer immediately if any Person makes any proposal, offer,
inquiry or contact with respect to any of the foregoing and the Member shall
provide copies and disclose the terms thereof to the Buyer, and shall
immediately cease and cause to be terminated and shall use its reasonable best
efforts to cause all the Company or the Member to immediately terminate and
cause to be terminated all existing discussions or negotiations with any such
Persons. Without limiting the foregoing, it is agreed that any violation of the
restrictions set forth above by any Affiliate of the Company or the Member,
whether or not such Person is purporting to act on behalf of the Company or the
Member, shall be deemed to be a breach of this Section 6.6 by the Company or the
Member, as applicable.
6.7 Confidentiality.
(a) The confidentiality agreement between DJSP Enterprises, Inc. and all of its
Affiliates, on the one hand, and HSCC and all of its Affiliates, on the other
hand, dated April 12, 2011 shall continue in effect until the Closing occurs.
(b) From and after the Closing Date, the Member shall hold in confidence all
confidential data or information with respect to the Company and its Business
and all terms and conditions of this Agreement using the same standard of care
to protect such confidential data or information or terms and conditions as it
used to protect such confidential information prior to the Closing Date.

 

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ARTICLE VII
ADDITIONAL COVENANTS
7.1 Public Announcements. Neither the Company nor the Member shall, nor shall
any of their respective Affiliates or agents (including accountants, lenders,
counsel or investment bankers), without the prior written consent of the Buyer,
issue any press release announcing the execution of this Agreement or the
transactions contemplated hereby, or the Closing hereunder, otherwise make any
public statements regarding the transactions contemplated hereby or otherwise
publicly disclose any of the contents of this Agreement, except as may be
determined in good faith by a party to be required by applicable Law and in such
case, such party shall provide the other party with reasonable advance notice
thereof.
7.2 Retention of and Access to Books and Records. After the Closing Date, Buyer
shall retain for a period consistent with Buyer’s record-retention policies and
practices the books and records relating to the Business. Buyer shall provide
the Member and its Representatives reasonable access to the Transferred Books
and Records, during normal business hours and on at least three days’ prior
written notice, for any reasonable business purpose specified by the Member in
such notice, including, but not limited to, verification of Contingent Payment
amounts, preparation of SEC filings or response to SEC requests, preparation of
financial statements or tax returns, or dealing with tax audits. After the
Closing Date, the Member and the Company shall provide Buyer and its
Representatives reasonable access to such books and records of the Member
relating to the Business, and all Books and Records not included in the
Transferred Books and Records, during normal business hours and on at least
three days’ prior written notice, for any reasonable business purpose specified
by the Buyer in such notice.
7.3 Litigation Cooperation. If the Buyer or any of its Affiliates shall become
engaged or participate in any Action relating in any way to the Acquired Assets,
the Excluded Assets, the Assumed Liabilities or the Excluded Liabilities, the
Company and the Member shall cooperate in all reasonable respects with such
party in connection therewith, including, without limitation, making available
to such parties, without cost, all relevant records and using its commercially
reasonable efforts to make available the employees of such party or its
Affiliates who are reasonably expected to be helpful with respect to such
Action, provided that, to the extent practicable, such employees shall be made
available in a manner so as not to interfere with their employment duties in any
material respect.
7.4 Use of Names. From and after the Closing, neither the Company nor the Member
shall use or permit to be used any names or other Trademarks included in the
Acquired Assets or any derivations thereof. Without limiting the foregoing,
promptly following the Closing, the Company shall, and the Member shall cause
the Company to, change the name of the Company to eliminate therefrom any name
acquired by the Buyer hereunder.

 

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7.5 Transition Matters. The Company and the Member shall, at no cost to the
Buyer or HSCC, take all action reasonably requested by the Buyer or HSCC to
effectively transition the Business, including the Acquired Assets, from the
Company to the Buyer. Without limiting the generality of the foregoing, at no
cost to the Buyer or HSCC, (a) the Company or Member, as the case may be, shall
forward all telephone calls, emails, correspondence, inquiries and other
information relating to the Business to the Buyer in a timely and professional
manner, and (b) for a period of thirty (30) days following the Closing or such
longer period as the Member and HSCC mutually agree, the Member shall provide
(i) assistance and support with respect to accounting and accounts payable of
the Business and (ii) access to and use of the Member’s email systems as
necessary for the uninterrupted operation of the Business by the Buyer following
the Closing.
7.6 Accounts Receivable/Collections. After the Closing, the Company shall permit
the Buyer to collect, in the name of the Company, all Accounts Receivable and to
endorse with the name of the Company for deposit in the Buyer’s account any
checks or drafts received in payment thereof. The Company shall promptly deliver
to the Buyer any cash, checks or other property that the Company may receive
after the Closing in respect of any Accounts Receivable or other assets
constituting part of the Acquired Assets.
7.7 Employment Matters.
(a) On or before the Closing Date, the Buyer may offer employment to any
employee of the Company as of the Closing Date as the Buyer may elect on terms
acceptable to the Buyer. The Company shall cooperate with and assist the Buyer
in its efforts to secure satisfactory employment arrangements with such
employees, including providing access to such employees as requested by the
Buyer. Any such employee accepting a position with the Buyer hereunder, as well
as the Designated Employee, shall be referred to as a “Transferred Employee” and
such Transferred Employee’s employment with the Company shall terminate
effective as of the commencement date of employment with the Buyer or any of its
Affiliates (with respect to each Transferred Employee, the “Transition Date”).
The Company consents to the hiring of the Transferred Employees by the Buyer or
any of its Affiliates and waives in perpetuity any claims or rights arising
under any non-competition, confidentiality, employment, assignment of inventions
or similar Contract to which any Transferred Employee is a party after the
Closing Date (other than such rights that are assigned to the Buyer pursuant to
this Agreement). Notwithstanding the foregoing, the Designated Employee shall be
required to continue to maintain the confidentiality of any information of the
Company or its Affiliates not related to the Business as required by the terms
of any such agreement. All Transferred Employees shall be employees at-will of
the Buyer, subject to the Buyer’s employment policies, and nothing herein shall
obligate the Buyer to employ any Transferred Employee for any specific time
period.
(b) From and after the Closing Date, Buyer shall provide the Transferred
Employees with the same or mirror employee benefit plans, programs, and fringe
benefit arrangements or policies that the Buyer or its Affiliates provide to
their employees. Buyer shall give each Transferred Employee full credit in
respect of his or her service with the Company (including service with previous
employers which is credited by the Company) prior to the Closing Date for
purposes of eligibility, vesting, level of benefits and service under any
benefit plans, benefit programs, fringe benefit plans, fringe benefit programs,
and fringe benefit arrangements maintained by the Buyer or its Affiliates in
which the Transferred Employee is otherwise eligible to participate (“Buyer
Plans”) (to the extent that the corresponding Employee Benefit Plan currently
provided to Company employees gave such credit).

 

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(c) From and after the Closing Date, Buyer will (i) cause any pre-existing
conditions or limitations and eligibility waiting periods (only to the extent
such limitations or waiting periods did not apply to the Transferred Employees
under the Company’s Employee Benefit Plans) under any group health plans of the
Buyer or its Affiliates, in which Transferred Employees are otherwise eligible
to participate, to be waived with respect to the Transferred Employees and their
eligible dependents and (ii) give each Transferred Employee credit for the plan
year in which the Closing Date occurs toward applicable deductibles and annual
out-of-pocket limits under group health plans of the Buyer or its Affiliates, in
which Transferred Employees are eligible to participate, for expenses incurred
prior to the Closing Date under the Company’s Employee Benefit Plans.
(d) As promptly as practicable, but in no event later than such date as is
required by Law, the Company shall (i) pay to each Transferred Employee all
wages and other compensation earned through the Closing Date, (ii) reimburse
each Transferred Employee for all reimbursable expenses incurred by him or her
through the Closing Date in accordance with Company policy, (iii) make all
required contributions to any Employee Benefit Plans (if permissible, or if not,
pay any amounts directly to each Transferred Employee) if such Transferred
Employee is a participant in such plan and would otherwise be eligible for such
contribution on or before the Closing Date, and (iv) make all other payments as
may be owed to any employee either under any Contract, in accordance with any
Company policy or practice or required by applicable Law.
(e) The Buyer shall not have any Liability with respect to any current or former
Company Employee, including, without limitation, any Transferred Employee,
arising from such Company Employee’s employment or engagement with the Company
or the termination of such Company Employee’s employment or engagement with the
Company; provided, however, that the Buyer shall be liable for its decision to
hire or not hire any Company Employee and Buyer’s violation of any state or
federal law in connection with the hiring and selection of Company Employees.
Without limiting the generality of the foregoing, from and after the Closing
Date, the Company shall remain solely responsible for any and all Liabilities in
respect of the Company Employees and their beneficiaries and dependents,
relating to or arising in connection with or as a result of (i) the employment
or engagement or the actual or constructive termination of employment or
engagement of any such Company Employee by the Company (including, without
limitation, in connection with the consummation of the transactions contemplated
by this Agreement), (ii) the participation in or accrual of benefits or
compensation under, or the failure to participate in or to accrue compensation
or benefits under, or the operation and administration of, any Employee Benefits
Plan or other employee or retiree benefit or compensation plan, program,
practice, policy, agreement or arrangement of the Company in which Transferred
Employees participated prior to the Closing Date and (iii) accrued but unpaid
salaries, wages, bonuses, incentive compensation, or other compensation or
payroll items (including, without limitation, deferred compensation), other than
vacation or sick pay, earned prior to the Closing Date. Further, the Company
shall remain responsible for the payment of any and all retention, change in
control, severance or other similar compensation or benefits which are or may
become payable in connection with the consummation of the transactions
contemplated by this Agreement. The Company shall be responsible for timely
compliance with all federal, state and local Laws with respect to the effect to
any of its employees of the transactions contemplated by this Agreement or by
any Related Agreement. The Buyer shall, to the extent required by Law, provide
COBRA coverage (and perform all obligations in connection with the provision of
COBRA coverage) to the Transferred Employees and the Transferred Employees’
spouses and dependent children who have a “qualifying event” under Section 4980B
of the Code on or after the Closing Date.

 

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(f) Buyer shall grant the Transferred Employees credit for and shall assume and
be responsible for (only as contemplated by Section 1.3(b)) any Company
liabilities with respect to personal time off and vacation time accrued but
unused or unpaid immediately prior to the Closing Date (the “Accrued Vacation”).
(g) Effective as of the Closing Date, the Buyer shall provide workers’
compensation coverage for the Transferred Employees for periods after the
Closing Date.
(h) To the extent allowed by applicable Law, the Company shall provide the Buyer
access to examine all personnel records for all Transferred Employees to the
extent reasonably requested by the Buyer.
(i) It is expressly agreed that the provisions of this Section 7.7 are not
intended to be for the benefit of, or otherwise enforceable by, any third party,
including any Company Employee, and no Company Employee (or any dependents of
such employees) will be treated as third party beneficiaries in or under this
Agreement.
ARTICLE VIII

CONDITIONS TO CLOSING
8.1 Conditions to Obligation of Each Party. The respective obligations of each
party to effect the Closing shall be subject to the satisfaction at or prior to
the Closing of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other similar Order (whether temporary,
preliminary or permanent) issued by any Court of competent jurisdiction or other
legal restraint or prohibition shall be in effect which prevents the
consummation of the transactions contemplated hereby, nor shall any Action
brought by any Governmental Authority seeking any of the foregoing be pending,
and there shall not be any action taken, or any Law enacted, entered, enforced
or deemed applicable to the transactions contemplated hereby, which makes the
consummation of such transactions, as contemplated herein, illegal.
(b) Governmental Approvals. All approvals of, or declarations or filings with,
any Governmental Authority necessary for the consummation of the transactions
contemplated hereby, if any, shall have been obtained or made.

 

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8.2 Conditions to Obligations of the Buyer. The obligations of the Buyer to
consummate the transactions provided for by this Agreement are subject, at the
discretion of the Buyer, to the satisfaction at or prior to the Closing of each
of the following conditions, unless waived by the Buyer in writing:
(a) The representations and warranties contained in Article III and Article IV
of this Agreement that are qualified by “materiality,” “Business Material
Adverse Effect” or a similar qualifier shall be true and correct in all
respects, and each of such representations and warranties that is not so
qualified shall be true and correct in all material respects, in each case, as
of the date hereof and as of the Closing Date as if originally made on and as of
the Closing Date, except that those representations and warranties that are made
as of a specific date shall be determined as of such date, and Buyer shall have
received a certificate to such effect signed by the Member and the Company.
(b) All of the agreements and covenants that Member and the Company are required
to perform or comply with pursuant to this Agreement at or prior to the Closing
Date shall have been performed or complied with in all material respects, and
Buyer shall have received a certificate to such effect signed by the Member and
the Company.
(c) Since the date of this Agreement, there shall not have occurred a Business
Material Adverse Effect, or any events, changes, developments or effects which,
individually or in the aggregate, could reasonably be expected to have a
Business Material Adverse Effect, and Buyer shall have received a certificate to
such effect signed by the Member and the Company.
(d) Each of the Approvals specified in Schedule 8.2(d) shall have been received
in form and substance reasonably satisfactory to the Buyer and shall be in full
force and effect.
(e) All loans or advances made to Company Employees or the Member shall be
repaid to the Company in full prior to the Closing;
(f) All Liens on the Acquired Assets shall have been discharged to the
satisfaction of the Buyer;
(g) Any accrued bonus liability with respect to the Transferred Employees shall
have been paid in full prior to the Closing;
(h) The Company shall have delivered to the Buyer a certificate of the Company’s
President, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Buyer, certifying as to and attaching (if applicable):
(i) complete and accurate copies of the Organizational Documents of the Company,
(ii) the incumbency of the officers executing this Agreement and (iii) complete
and accurate copies of resolutions of the sole Member authorizing and approving
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby, and the acts of the officers of the Company in carrying out
the terms and provisions hereof and thereof;

 

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(i) The Company shall have executed and delivered to the Buyer a bill of sale,
assignment and assumption agreement in substantially the form of Exhibit B
attached hereto (the “Bill of Sale”);
(j) Each of the Company and the Member shall have executed and delivered to the
Buyer the Non-Competition Agreement;
(k) As of the Closing, the Employment Agreement delivered by the Designated
Employee on the date hereof shall be in full force and effect and the Designated
Employee shall have performed or complied with each obligation, agreement, and
covenant to be performed or complied with by such Designated Employee thereunder
on or prior to the Closing Date.
(l) The Company shall have delivered to the Buyer a certificate of legal
existence and good standing from the Secretary of State of its jurisdiction of
organization and any jurisdiction where the Company is qualified to do business,
which certificates shall be dated no more than five (5) Business Days prior to
the Closing Date;
(m) Dykema Gossett PLLC, counsel to the Company, shall have delivered to the
Buyer a legal opinion in the form attached hereto as Exhibit C;
(n) The Company shall have delivered to the Buyer a certificate, indicating that
it is not a foreign person, that complies with Treasury
Regulation Section 1.1445-2(b);
(o) No action, suit or proceeding shall have been instituted by any Person which
seeks to prohibit, restrict or delay consummation of the transactions
contemplated herein or any of the conditions material to consummation of the
transactions contemplated herein; and
(p) The Company and the Member shall have delivered to the Buyer such other
instruments, certificates, documents or materials as may be reasonably requested
by the Buyer in connection with the consummation of the transactions
contemplated hereby.
8.3 Conditions to Obligations of the Company and the Member. The obligations of
the Member to consummate the transactions provided for by this Agreement are
subject, in the discretion of the Member, to the satisfaction at or prior to the
Closing Date of each of the following conditions, unless waived by the Member in
writing:
(a) The representations and warranties of the Buyer and HSCC contained in this
Agreement shall have been true and correct in all material respects on and as of
the date hereof and shall be true and correct on and as of the Closing Date as
if originally made on and as of the Closing Date, except that those
representations and warranties that are made as of a specific date shall be
determined as of such date, and the Member shall have received a certificate to
such effect signed by the Buyer and HSCC.
(b) All of the agreements and covenants that the Buyer or HSCC is required to
perform or comply with pursuant to this Agreement at or prior to the Closing
Date shall have been performed or complied with in all material respects, and
the Member shall have received a certificate to such effect signed by the Buyer
and HSCC.

 

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(c) The Buyer shall have executed and delivered to the Company the Bill of Sale;
(d) Each of HSCC and the Buyer shall have delivered to the Company a certificate
of its respective Secretary, dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company, certifying as to and attaching (if
applicable): (i) complete and accurate copies of its respective Organizational
Documents, (ii) the incumbency of the officers executing this Agreement and
(iii) complete and accurate copies of resolutions of its respective Board of
Directors authorizing and approving the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, and the acts of the
directors and officers of HSCC and the Buyer in carrying out the terms and
provisions hereof and thereof;
(e) HSCC and Buyer shall have delivered to the Member a certificate of legal
existence and corporate good standing from the Secretary of State of its
jurisdiction of incorporation and any jurisdiction where it is qualified to do
business, which certificates shall be dated no more than three (3) Business Days
prior to the Closing Date;
(f) No action, suit or proceeding shall have been instituted by any Person which
seeks to prohibit, restrict or delay consummation of the transactions
contemplated herein or any of the conditions material to consummation of the
transactions contemplated herein; and
(g) HSCC and the Buyer shall have delivered to the Company and the Member such
other instruments, certificates, documents or materials as may be reasonably
requested by the Company or the Member in connection with the consummation of
the transactions contemplated hereby.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION
9.1 Survival of Representations, Warranties and Covenants. Subject to the
provisions of this Article IX, each of the representations and warranties
contained in this Agreement or in any other agreement, exhibit, schedule,
certificate, instrument or other writing delivered by or on behalf of the Buyer,
HSCC, the Company or the Member pursuant to this Agreement shall survive the
Closing and shall terminate at 11:59 p.m. (EST) time on the date that is one
(1) year after the Closing Date; provided, however, that the Excepted
Representations shall survive the Closing and shall terminate at 11:59 p.m.
(EST) time on the date that is sixty (60) days following the date of the
expiration of the applicable statute of limitations (including any extension
thereof) for the matter giving rise to the claim. For convenience of reference,
the date upon which any representation or warranty shall terminate is referred
to herein as the “Survival Date.” Unless otherwise expressly set forth in this
Agreement, the covenants and agreements set forth in this Agreement shall
survive the Closing and remain in effect indefinitely (it being understood, for
the avoidance of doubt, that the phrase “covenants and agreements” does not
include representations and warranties, the survival and termination of which
are addressed in the first sentence of this Section 9.1). The parties hereto
hereby acknowledge and agree that the time periods set forth in this Section 9.1
for the assertion of claims under this Agreement are the result of arms’-length
negotiation among the parties hereto and that they intend for the time periods
to be enforced as agreed by the parties hereto.

 

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9.2 Indemnification by the Company and the Member.
(a) The Company and the Member, jointly and severally, shall indemnify, defend
and hold harmless HSCC, the Buyer and their respective Affiliates, their
respective successors and assigns, and the respective officers, directors,
employees and agents of each of the foregoing (the “Buyer Indemnified Persons”)
from and against any and all Losses of every kind, nature or description
asserted against, or sustained, incurred or accrued directly or indirectly by,
any Buyer Indemnified Person which arise out of or result from or as a
consequence of any of the following:
(i) the breach or inaccuracy of any representation or warranty of the Company or
the Member contained in Articles III or IV of this Agreement or in any Related
Agreement or any certificate delivered by the Company or the Member pursuant to
this Agreement, provided that, such representations and warranties shall be
interpreted without giving effect to any limitations or qualifications as to
“materiality” (including the word “material”), “Business Material Adverse
Effect”, or any similar limitations or qualifications;
(ii) the breach of or non-compliance with any agreement or covenant of the
Company or the Member contained in this Agreement or in any Related Agreement;
(iii) any of the Excluded Liabilities, including the failure of the Company or
other Person to honor, pay, discharge or perform any Excluded Liability;
(iv) any Taxes of any kind relating to or arising in connection with the
transfer of the Acquired Assets to the Buyer, including any sales Taxes, any
bulk sales or similar statute applicable to the transactions contemplated by
this Agreement or the failure of any Person to comply with the provisions
thereof;
(v) the ownership of the Acquired Assets prior to the Closing and the ownership
of the Excluded Assets at any time;
(vi) the operation of the Business prior to the Closing;
(vii) any Company Indebtedness or Company Transaction Expenses not satisfied at
or prior to the Closing;
(viii) any failure by the Company to comply with Laws applicable to it, to the
Acquired Assets and to the Company’s ownership, use or operation thereof, or
applicable to the operation of the Business, including, without limitation, the
matters described in Section 3.15 of the Company Disclosure Schedule; or
(ix) enforcement of this Section 9.2.

 

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(b) Subject to the right of the Buyer or HSCC to seek specific performance and
injunctive relief to enforce the terms of this Agreement, (i) any Losses which a
Buyer Indemnified Person is entitled to recover pursuant to Section 9.2(a) shall
be satisfied solely by reducing any Contingent Payment Amount that is payable or
that becomes payable to the Company pursuant to Section 2.2 (including, any
Contingent Payment Amount placed with the Escrow Agent as contemplated by
Section 2.2(e) (but not Section 2.2(b)) or deposited by the Escrow Agent with a
court or other party in connection with the resolution of any dispute relating
to those payments) (the “Remaining Payments”) and (ii) with respect to the
Losses which a Buyer Indemnified Person is entitled to recover pursuant to
Section 9.2(a)(viii), such Losses shall be satisfied out of the Escrow Amount
placed with the Escrow Agent as contemplated by Section 2.2(b).
9.3 Indemnification by the Buyer and HSCC. Buyer and HSCC, jointly and
severally, shall indemnify and hold harmless the Company and the Member
(“Company Indemnified Persons”) from and against, and shall reimburse the
Company and the Member for, any and all Losses arising out of, based upon or in
any way relating to:
(a) the breach or inaccuracy of any representation or warranty of the Buyer or
HSCC contained in Article V of this Agreement or in any Related Agreement or any
certificate delivered by the Buyer or HSCC pursuant to this Agreement, provided
that, such representations and warranties shall be interpreted without giving
effect to any limitations or qualifications as to “materiality” (including the
word “material”), “material adverse effect”, or any similar limitations or
qualifications;
(b) the breach of or non-compliance with any agreement or covenant of the Buyer
or HSCC contained in this Agreement or in any Related Agreement;
(c) any of the Assumed Liabilities, including the failure of the Company or
other Person to honor, pay, discharge or perform any Assumed Liability;
(d) the Buyer’s operation of the Business after the Closing Date, or ownership
of the Acquired Assets after the Closing Date; provided, however that Buyer
shall not have any liability under this Section 9.3(d) to the extent that any
action or omission giving rise to any such Loss commenced prior to the Closing
and continued following the Closing; and
(e) enforcement of this Section 9.3.
9.4 Limitations on Indemnification. Subject to the provisions of Section 9.7:
(a) no indemnification shall be payable to a Buyer Indemnified Person as a
result of any Losses arising under Section 9.2(a)(i) or to a Company Indemnified
Person as a result of any Losses arising under Section 9.3(a) until the
aggregate amount of all Losses incurred by all Buyer Indemnified Persons or
Company Indemnified Persons, as applicable, exceeds $25,000 (the “Basket”),
whereupon (in each case subject to Sections 9.4(b)(i) and 9.4(c)(i), as
applicable, below) the Buyer Indemnified Persons or the Company Indemnified
Persons, as applicable, shall be entitled to receive the amount of all Losses,
including the Basket; provided, however, that the foregoing shall not apply to
any Losses resulting from or arising out of any breach or inaccuracy of any of
the Excepted Representations;

 

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(b) the maximum aggregate Losses payable to the Buyer Indemnified Persons
pursuant to (i) Section 9.2(a)(i) shall be an amount equal to $250,000 (the
“Mini Cap”); provided, however, that the foregoing shall not apply to any Losses
resulting from or arising out of any breach or inaccuracy of any of the Excepted
Representations; (ii) Section 9.2(a)(ii) through 9.2(a)(ix) shall be an amount
equal to the Remaining Payments; and (iii) Section 9.2(a)(viii) shall be an
amount equal to the Escrow Amount; and
(c) the maximum aggregate Losses payable to the Company Indemnified Persons
pursuant to (i) Section 9.3(a) shall be an amount equal to the Mini Cap;
provided, however, that the foregoing shall not apply to any Losses resulting
from or arising out of any breach or inaccuracy of any of the Excepted
Representations; and (ii) Section 9.3(b) through 9.3(e) shall be an amount equal
to $1,000,000 plus the Remaining Payments (except that the Buyer’s and HSCC’s
aggregate liability for claims for Losses under Section 9.3 shall be reduced by
the Mini Cap on the first anniversary of the Closing Date, except with respect
to claims made by Company Indemnified Persons under Section 9.3(a) on or before
the first anniversary of the Closing Date in accordance with this Agreement,
which shall survive and be subject to the Mini Cap until such time as such
claim(s) have been resolved).
9.5 Indemnification Process.
(a) If any legal proceedings shall be instituted or any claim is asserted by any
third party in respect of which any party hereto may have an obligation to
indemnify another party, the party asserting such right to indemnity (the
“Indemnified Party”) shall give the party from whom indemnity is sought (the
“Indemnifying Party”) written notice thereof, but any failure to so notify the
Indemnifying Party shall not relieve it from any liability that it may have to
the Indemnified Party other than to the extent the Indemnifying Party is
actually prejudiced thereby.
(b) The Indemnified Party may defend any third party claim with counsel of its
own choosing, and shall act in a commercially reasonable manner and in
accordance with its good faith business judgment in handling such third party
claim. All costs (including attorneys’ fees) incurred by the Indemnified Party
in defending such third party claim shall be at the cost and expense of the
Indemnifying Party, and the Indemnifying Party will promptly reimburse the
Indemnified Party therefor in accordance with this Section 9.5. The Indemnifying
Party shall have the right, at its option and expense, to participate in the
defense of such proceeding or claim, but not to control the defense, negotiation
or settlement thereof, which control shall at all times rest with the
Indemnified Party. Notwithstanding the two preceding sentences, if the
Indemnifying Party (i) admits in writing its liability to the Indemnified Party
hereunder with respect to such proceeding or claim; and (ii) furnishes evidence
of its financial ability to indemnify the Indemnified Party reasonably
satisfactory to the Indemnified Party, the Indemnifying Party may assume control
of the defense at its expense through counsel reasonably satisfactory to such
Indemnified Party; provided, however, that:
(i) the Indemnified Party shall be entitled to participate in the defense of
such claim and to employ counsel at its own expense to assist in the handling of
such claim; provided, however, that the employment of such counsel shall be at
the expense of the Indemnifying Party if the Indemnified Party determines in
good faith that such participation is appropriate in light of defenses not
available to the Indemnifying Party, conflicts of interest or other similar
circumstances;

 

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(ii) no Indemnifying Party shall consent to the entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by each claimant or plaintiff to each Indemnified Party of a release from
all liability in respect of such claim; and
(iii) the Indemnifying Party shall not be entitled to control (but shall be
entitled to participate at its own expense in the defense of), and the
Indemnified Party shall be entitled to have sole control over, the defense or
settlement of (A) any claim to the extent the claim seeks an order, injunction,
non-monetary or other equitable relief against the Indemnified Party which, if
successful, could materially interfere with the business, operations, assets,
condition (financial or otherwise) or prospects of the Indemnified Party or
(B) any claim relating to Taxes.
(c) If the Indemnified Party elects not to defend such third party claim, the
Indemnified Party shall promptly provide notice to the Indemnifying Party. After
written notice by the Indemnifying Party to the Indemnified Party of its
assumption of control of the defense of any such action pursuant to this
Section 9.5, the Indemnifying Party shall not be liable to such Indemnified
Party hereunder for any Legal Expenses subsequently incurred by such Indemnified
Party in connection with the defense thereof other than reasonable costs of
investigation and of liaison counsel for the Indemnified Party; provided,
however, that the Indemnifying Party shall be liable for such Legal Expenses if
the Indemnified Party determines in good faith that the incurrence of the same
is appropriate in light of defenses not available to the Indemnifying Party,
conflicts of interest or other similar circumstances. If the Indemnifying Party
does not assume control of the defense of such claim as provided in this
Section 9.5, the Indemnified Party shall have the right to defend such claim in
such manner as it may deem appropriate at the cost and expense of the
Indemnifying Party, and the Indemnifying Party will promptly reimburse the
Indemnified Party therefor in accordance with this Section 9.5. The
reimbursement of fees, costs and expenses required by this Section 9.5 shall be
made by periodic payments during the course of the investigations or defense, as
and when bills are received or expenses incurred.
(d) The Indemnified Party shall obtain the prior written approval of the
Indemnifying Party before entering into any settlement of a third party claim or
ceasing to defend against such claim (with such approval not to be unreasonably
withheld or conditioned).
(e) The Indemnifying Party and the Indemnified Party shall make available to
each other and their counsel and accountants all books and records and
information relating to any third party claims, keep each other apprised as to
the details and progress of all proceedings relating thereto and render to each
other such assistance as may be reasonably required to ensure the proper and
adequate defense of any and all third party claims.

 

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9.6 Other Claims. A claim for indemnification for any matter not involving a
third-party claim shall be asserted by the Indemnified Party to the Indemnifying
Party (or to the Indemnifying Party and the Escrow Agent in the case of a claim
pursuant to Section 9.2(a)(viii)) in writing (“Notice of Claim”), setting forth
specifically the obligation with respect to which the claim is made, the facts
giving rise to and the alleged basis for such claim and, if known or reasonably
ascertainable, the amount of the liability asserted or which may be asserted by
reason thereof (the amount of liability so claimed being hereinafter referred to
as the “Indemnity Claim Amount”), but any failure to so notify the Indemnifying
Party shall not relieve it from any liability that it may have to the
Indemnified Party other than to the extent the Indemnifying Party is actually
prejudiced thereby. Any Notice of Claim sent to the Escrow Agent in connection
with a claim pursuant to Section 9.2(a)(viii) shall be sent simultaneously to
the Company and the Member and shall specify the date that such notice is deemed
received by the Escrow Agent under the terms of the Escrow Agreement. In
addition, the Escrow Agent will be authorized in respect of such Notice of Claim
to disburse within twenty (20) days after receipt of such notice (unless the
Company or the Member object within fifteen (15) days of the receipt of the
Notice of Claim by a written notice to the Buyer and the Escrow Agent) to the
Buyer the escrow funds in an amount equal to the portion, if any, of the
Indemnity Claim Amount specified in such Notice of Claim which is not objected
to by the Company or the Member and will not be authorized to disburse the
escrow funds in respect to such portion of the Indemnity Claim Amount which is
objected to by the Company or the Member unless it has received either a joint
notice of release signed by the Buyer and the Member directing the Escrow Agent
to deliver all or any portion of the Escrow Amount and setting forth
instructions as to payment, which joint notice the Buyer and the Member agree to
deliver to the Escrow Agent promptly following resolution of any dispute with
respect to the matters set forth in the Notice of Claim, or a final order by a
court of competent jurisdiction, which order is not subject to appeal, directing
the Escrow Agent to disburse to the Buyer all or any portion of the Escrow
Amount as set forth in such final order.
9.7 Fraud and Related Claims; Exclusive Remedy. Notwithstanding any provision of
this Agreement to the contrary, nothing contained in this Agreement shall in any
way limit, impair, modify or otherwise affect the rights of an Indemnified Party
to bring any claim, demand, suit or cause of action otherwise available to such
Indemnified Party based upon, or to seek or recover any Losses arising from or
related to, nor shall any of the limitations set forth in Section 9.4 apply with
respect to, an allegation or allegations of fraud, willful breach, or willful or
intentional misrepresentation or omission of a material fact in connection with
this Agreement or any of the Related Agreements, or criminal liability. Except
for claims of fraud, willful breach, willful or intentional misrepresentation or
omission of a material fact in connection with this Agreement, or criminal
liability, the parties hereby acknowledge and agree that from and after the
Closing, subject to the right of the Buyer to seek specific performance and
injunctive relief to enforce the terms of any covenants herein, the exclusive
remedy of the parties hereto with respect to any and all claims arising in
connection with or relating to the transactions contemplated under this
Agreement shall be pursuant to the provisions set forth in this Article IX.
9.8 Characterization of Payments. The Parties agree that any payment pursuant to
an indemnification obligation under this Article IX shall be treated for Tax
purposes as an adjustment to the Purchase Price.
9.9 Calculation of Losses. Subject to the other provisions of this Article IX,
each Indemnified Party shall use commercially reasonable efforts to mitigate
Losses, including seeking recovery under insurance policies and from third
parties. Any insurance proceeds or recoveries from third parties received by an
indemnified party with respect to any Losses shall reduce, on a
dollar-for-dollar basis, the amount payable to such Indemnified Party under the
indemnification provisions of this Article IX.

 

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ARTICLE X
TERMINATION
10.1 Termination.
(a) This Agreement may be terminated, in which case the transactions
contemplated hereby shall be abandoned, at any time prior to the Closing:
(i) by mutual written consent of the Buyer or HSCC, on the one hand, and the
Member, on the other hand;
(ii) by either the Buyer or HSCC, on the one hand, or the Member, on the other
hand, upon written notice to the other Parties, if there has been a material
breach of any representation or warranty, or breach or non-performance in any
material respect of a covenant or agreement on the part of the other party set
forth in this Agreement, which breach or failure to perform would render
unsatisfied any condition contained in Section 8.2 or 8.3, as applicable, and is
incapable of being cured, or, if capable of being cured, has not been cured by
the breaching party within ten days after the non-breaching party has notified
the breaching party;
(iii) by either the Buyer or HSCC, on the one hand, or the Member, on the other
hand, upon written notice to the other Parties, at any time after June 30, 2011
(the “Final Termination Date”), provided that if the Closing shall not have
occurred by the Final Termination Date as the result of a breach of this
Agreement, then any party responsible for such breach may not avail itself of
the right under this Section 10.1, and provided further, that in any such event,
the non-breaching party(ies) shall not be deprived of any remedy hereunder or at
law against the breaching party, and provided further, that if the only
condition precedent not met as of the Final Termination Date is that the Parties
have not received all of the approvals of Governmental Authorities set forth in
Section 3.5 of the Company Disclosure Schedule, then either Buyer or the Member
may extend the Final Termination Date to up to one (1) month after the date of
this Agreement;
(iv) by either the Buyer or HSCC, on the one hand, or the Member, on the other
hand, upon written notice to the other Parties, if a court of competent
jurisdiction or Governmental Authority shall have issued an Order or taken any
other Action, in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such Order or
other Action shall have become final and non-appealable; or

 

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(v) by the Buyer or HSCC, upon written notice to the other Parties, if there
shall have been a Business Material Adverse Change.
(b) In addition, in the event the transactions contemplated by this Agreement
are not consummated on or prior to the Final Termination Date and this Agreement
is terminated pursuant to this Section 10.1, upon written notice by HSCC or
Timios Acquisition Corp. to the Member and Timios, Inc., the Stock Purchase
Agreement by and among HSCC, Timios Acquisition Corp., the Member and Timios,
Inc. dated as of May 27, 2011 shall be terminated as provided in Article IX of
such agreement.
10.2 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 10.1, this Agreement shall forthwith terminate and become
void, and there shall be no liability on the part of any party hereto to any
other and all rights and obligations of any party hereto will cease, except that
(a) this Section 10.2 and Article XI shall survive any such termination and
(b) nothing herein shall relieve any party from liability for any breach of this
Agreement prior to the termination hereof.
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Agreement, together with the schedules and exhibits
attached hereto, the Related Agreements and all other ancillary agreements,
documents and instruments to be delivered in connection herewith contain the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersede all prior agreements, either oral or written; provided,
however, that the Confidentiality Agreement shall survive the execution of this
Agreement until the consummation of the transactions contemplated hereby, at
which time it shall terminate. Without limiting the generality of the foregoing
and notwithstanding anything in this Agreement to the contrary, no party is
making any representation or warranty whatsoever, oral or written, express or
implied, in connection with the transactions contemplated by this Agreement and
the Related Agreements other than those set forth in this Agreement or in the
Related Agreements and no party is relying on any statement, representation or
warranty, oral or written, express or implied, made by any other party except
for the representations and warranties set forth in this Agreement or in the
Related Agreements. The parties hereto agree that, notwithstanding any access to
information by any party or any right of any party to this Agreement to
investigate the affairs of any other party to this Agreement, the party having
such access and right to investigate shall have the right to rely fully upon the
representations and warranties of the other party expressly contained in this
Agreement and on the accuracy of any schedule, exhibit or other document
attached hereto or referred to herein or delivered by such other party or
pursuant to this Agreement.
11.2 Successors and Assigns; No Third Party Beneficiaries. No party may assign
any of its rights or delegate any of its obligations under this Agreement
without the prior written consent of the other parties, except that Buyer may
assign any of its rights and delegate any of its obligations under this
Agreement to any Subsidiary of the Buyer; provided, however, that HSCC and the
Buyer shall remain liable to the Member for any payments due under this
Agreement. 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. 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, except such rights as shall
inure to a successor or permitted assignee pursuant to this Section 11.2. 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.

 

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11.3 Amendment and Waiver. This Agreement may be amended only by an instrument
in writing specifically amending this Agreement signed by the Buyer, the Company
and the Member.
11.4 Expenses. Each of the parties shall bear its own fees, costs and expenses
incurred in connection with this Agreement (including the preparation,
negotiation and performance hereof) and the transactions contemplated hereby
(including fees and disbursements of attorneys, accountants, agents,
representatives and financial and other advisors) (collectively, the
“Transaction Expenses”). The Company and the Member shall pay any filing fee, if
any, that is required to be paid to any Governmental Authority as a result of
the transactions contemplated by this Agreement, except with respect to any
filing fee for the Real Estate Corporation license or any similar license
required to be obtained by the Buyer. Notwithstanding the foregoing, in the
event that a party institutes an Action to enforce its rights under this
Agreement or any Related Agreement, the prevailing party in such Action shall be
entitled to recover its reasonable costs and expenses (including reasonable
attorneys’ fees) incurred in connection with such Action from the losing party.
11.5 Execution of Agreement. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Copies (whether
photostatic, facsimile or otherwise) of this Agreement may be made and relied
upon to the same extent as an original. The exchange of copies of this Agreement
and of signature pages by facsimile transmission or e-mail shall constitute
effective execution and delivery of this Agreement as to the parties and may be
used in lieu of the original Agreement for all purposes. Signatures of the
parties transmitted by facsimile or e-mail shall be deemed to be their original
signatures for all purposes.
11.6 Governing Law; Venue. This Agreement shall be governed by the Laws of the
State of Delaware without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdictions)
that would cause application of the Laws of any jurisdiction other than the
State of Delaware.
11.7 Specific Performance. The rights and remedies of the parties hereto shall
be cumulative. The transactions contemplated by this Agreement are unique
transactions and any failure on the part of any party to complete the
transactions contemplated by this Agreement on the terms of this Agreement will
not be fully compensable in damages and the breach or threatened breach of the
provisions of this Agreement would cause the other parties hereto irreparable
harm. Accordingly, in addition to and not in limitation of any other remedies
available to the parties hereto for a breach or threatened breach of this
Agreement, the parties shall be entitled to seek specific performance of this
Agreement and seek an injunction restraining any such party from such breach or
threatened breach.

 

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11.8 Interpretation. The schedules and exhibits attached hereto are an integral
part of this Agreement. All schedules and exhibits attached to this Agreement
are incorporated herein by this reference and all references herein to this
“Agreement” shall mean this Agreement together with all such schedules and
exhibits. When a reference is made in this Agreement to Sections, subsections,
schedules or exhibits, such reference shall be to a Section, subsection,
schedule or exhibit to this Agreement unless otherwise indicated. The words
“include,” “includes” and “including” when used herein shall be deemed in each
case to be followed by the words “without limitation.” The word “herein” and
similar references mean, except where a specific Section or Article reference is
expressly indicated, the entire Agreement rather than any specific Section or
Article. The table of contents and the headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The term $ shall mean dollars of the United
States of America. As used herein, all pronouns shall include the masculine,
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
11.9 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
11.10 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) on the day of service if served personally
on the party to whom notice is given, (b) on the date of receipt if delivered by
telecopy or nationally recognized overnight courier, or (c) on the third (3rd)
Business Day after deposit in the U.S. mail if mailed to the party to whom
notice is given by registered or certified mail, postage prepaid, return receipt
requested and properly addressed as follows:
If to HSCC or the Buyer:
Homeland Security Capital Corporation
1005 North Glebe Road, Suite 550
Arlington, VA 22201
Attention: C. Thomas McMillen
Facsimile: (703) 528-0956
and
Default Servicing USA, Inc.
5111 Commerce Crossings Drive
Suite 210
Louisville, KY 40229
Attention: C. Thomas McMillen
Facsimile: (502) 968-1122

 

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with a copy (which will not constitute notice) to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
666 Third Avenue
New York, NY 10017
Attention: Kenneth R. Koch
Facsimile: (212) 983-9115
If to the Company or the Member, addressed to:
DAL Group, LLC
950 South Pine Island Road
Plantation, Florida 33324
Attention: Stephen J. Bernstein, President and CEO
Facsimile: (786) 999-0260
with a copy (which will not constitute notice) to:
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243
Attention: Thomas S. Vaughn
Facsimile: (313) 568-6594
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be received (a) in the case of personal
delivery, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next Business Day after the date when sent, (c) in the
case of facsimile transmission, upon confirmed receipt, and (d) in the case of
mailing, on the second Business Day following the date on which the piece of
mail containing such communication was posted.
11.11 Representation by Counsel. Each party hereto acknowledges that it has been
or has had an opportunity to be advised by legal counsel retained by such party
in its sole discretion. Each party acknowledges that such party has had a full
opportunity to review this Agreement and all related exhibits, schedules and
ancillary agreements and to negotiate any and all such documents in its sole
discretion, without any undue influence by any other party hereto or any third
party.

 

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11.12 Construction. The parties have participated jointly in the negotiations
and drafting of this Agreement and in the event of any ambiguity or question of
intent or interpretation, no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
11.13 Waivers. No waiver by any party, whether express or implied, of its rights
under any provision of this Agreement shall constitute a waiver of the party’s
rights under such provisions at any other time or a waiver of the party’s rights
under any other provision of this Agreement. No failure by any party to take any
action against any breach of this Agreement or default by another party shall
constitute a waiver of the former party’s right to enforce any provision of this
Agreement or to take action against such breach or default or any subsequent
breach or default by the other party. To be effective any waiver must be in
writing and signed by the waiving party.
11.14 Third Party Beneficiaries. Nothing express or implied in this Agreement is
intended to confer, nor shall anything herein confer, upon any Person other than
the parties hereto and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities whatsoever, except to the extent
that such third person is an indemnified person in respect of the
indemnification provided in accordance with Article IX of this Agreement. The
representations and warranties contained in this Agreement are for the sole
benefit of the parties hereto and no other Person may rely on such
representations and warranties for any purpose whatsoever.
11.15 Bulk Sales Law. Each party hereby waives compliance by each other with the
so-called “bulk sales law” and other similar Law in any jurisdiction in respect
of the transactions contemplated by this Agreement.
11.16 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUR OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
[Signature Page to Follow]

 

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NOW THEREFORE, the parties hereto have executed, or caused this Asset Purchase
Agreement to be executed by their duly authorized representatives, as of the
date first written above.

            BUYER:

DEFAULT SERVICING USA, INC.
      By:   /s/ C. Thomas McMillen         Name:   C. Thomas McMillen       
Title:   Chief Executive Officer   

            HSCC:

HOMELAND SECURITY CAPITAL CORPORATION
      By:   /s/ C. Thomas McMillen         Name:   C. Thomas McMillen       
Title:   Chief Executive Officer   

            COMPANY:

DEFAULT SERVICING, LLC
      By:   /s/ Stephen J. Bernstein       Name:   Stephen J. Bernstein      
Title:   Vice President  

            MEMBER:

DAL GROUP, LLC
      By:   /s/ Stephen J. Bernstein       Name:   Stephen J. Bernstein      
Title:   President and Chief Executive Officer  

Signature Page to Default Servicing Purchase Agreement

 

 

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            SOLELY FOR PURPOSES OF SECTION 10.1(B):

TIMIOS, INC.
      By:   /s/ Stephen J. Bernstein       Name:   Stephen J. Bernstein      
Title:   Vice President  

Signature Page to Default Servicing Purchase Agreement

 

 

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Schedule I
INDEX OF DEFINED TERMS

      Accounts Receivable   Section 1.1(e) Accrued Vacation   Section 7.7(f)
Acquired Business   Section 2.2(f) Action   Schedule I Affiliate   Schedule I
Agreed Percentage   Section 2.2(f) Agreement   Preamble Allocation Schedule  
Section 2.6 Anti-Terrorism Laws   Schedule I Approval   Schedule I Assigned
Contracts   Section 1.1(a) Assumed Liabilities   Section 1.3 Base Purchase Price
  Section 2.1 Basket   Section 9.4(a) Bill of Sale   Section 8.2(i) Books and
Records   Schedule I Business   Recitals Business Day   Schedule I Business
Licenses   Section 3.7(a) Business Material Adverse Change   Section 3.13
Business Material Adverse Effect   Schedule I Buyer   Preamble Buyer Indemnified
Persons   Section 9.2(a) Buyer Plans   Section 7.7(b) Buyer Prorated Amount  
Section 2.3(a) CERCLA   Schedule I Closing Date   Section 1.5 Closing  
Section 1.5 COBRA   Schedule I Code   Schedule I Company   Preamble Company
Employee   Schedule I Company Indebtedness   Schedule I Company Indemnified
Persons   Section 9.3 Company Intellectual Property   Schedule I Company
Services   Schedule I Company Transaction Expenses   Schedule I Contingent
Payment Amount   Section 2.2(a) Contracts   Schedule I Control   Schedule I

 

 

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      Copyrights   Schedule I Court   Schedule I Databases   Section 3.22(l)
Designated Employee   Recitals Company Disclosure Schedule   Article III Dispute
Accounting Firm   2.2(e) Employee Agreement   Section 3.16(a) Employee Benefit
Plan   Schedule I Employment Agreement   Recitals Enforceability Exceptions  
Section 3.4 Environmental Laws   Schedule I ERISA   Schedule I ERISA Affiliate  
Schedule I Escrow Agent   Section 2.2(b) Escrow Agreement   Section 2.2(b)
Escrow Amount   Section 2.2(b) Escrow Deposit Amount   Section 2.2(b) Excepted
Representations   Schedule I Excluded Assets   Section 1.2 Excluded Contracts  
Section 1.2(a) Excluded Liabilities   Section 1.4 Financial Statements  
Section 3.12(a) GAAP   Schedule I Governmental Authority   Schedule I Government
Bid   Schedule I Indebtedness   Schedule I Indemnified Party   Section 9.5(a)
Indemnifying Party   Section 9.5(a) Indemnity Claim Amount   Section 9.6
Intellectual Property   Schedule I Interim Balance Sheet   Section 3.12(a) IRS  
Schedule I Knowledge   Schedule I Laws   Schedule I Leased Personal Property  
Section 3.10 Leased Real Property   Section 3.9(a) Legal Expenses   Schedule I
Liabilities   Schedule I License Agreements   Section 3.22(b) Licensed
Intellectual Property   Section 3.22(b) Lien   Schedule I Loss Estimate  
Section 9.4(a) Losses   Schedule I Material Client   Section 3.29(a) Materials
of Environmental Concern   Schedule I Maximum Contingent Payment Amount  
Section 2.2(a)

 

 

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      Maximum Contingent Payment Amount Objection Notice   Section 2.2(a)
Measurement Period   Section 2.2(b) Member   Recitals Mini Cap   Section 9.4(b)
Net Revenue   Section 2.2(f) Net Revenue Objection Notice   Section 2.2(e)
Non-Competition Agreement   Recitals Notice of Claim   Section 9.6 Objection
Notice   Section 2.2(e) Office Lease   Section 2.3(a) Open Source Materials  
Section 3.22(i) Order   Schedule I Ordinary Course of Business   Schedule I
Organizational Documents   Schedule I Patents   Schedule I Person   Schedule I
Personal Property Leases   Section 3.10 Personally Identifiable Information  
Schedule I Premises   Section 3.9(b) Pre-Closing Revenues   Section 2.2(a) Prior
Actions   Section 3.14(b) Purchase Price   Section 2.1 Real Property Leases  
Section 3.9(a) Regulation   Schedule I Related Agreements   Schedule I Remaining
Payments   Section 9.2(b) Scheduled Contracts   Section 3.19(a) Software  
Schedule I Subsidiary   Schedule I Survival Date   Section 9.1 Tax or Taxes  
Schedule I Tax Return   Schedule I Third Party Claim   Section 9.4(b) Trade
Secrets   Schedule I Trademarks   Schedule I Trading with the Enemy Act  
Schedule I Transaction Expenses   Section 11.4 Transferred Books and Records  
Section 1.1(g) Transferred Employee   Section 7.6(a) Transition Date  
Section 7.6(a) USPTO   Section 3.22(a) Vendor   Section 3.29(b) WARN  
Schedule I

 

 

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TABLE OF DEFINITIONS
“Action” means any suit, action, arbitration, cause of action, claim, complaint,
prosecution, audit, inquiry, investigation, governmental or other proceeding,
whether civil, criminal, administrative, investigative or informal, at law or at
equity, before or by any Governmental Authority, arbitrator or other tribunal.
“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned Person; including any
partnership or joint venture in which the Company (either alone, or through or
together with any other Subsidiary) has, directly or indirectly, an interest of
10% or more; and “control” (including the terms “controlled by” and “under
common control with”) means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of stock or other securities, as trustee or
executor, by contract or credit arrangement or otherwise.
“Anti-Terrorism Laws” means any applicable Laws relating to terrorism or money
laundering, including Executive Order No. 13224, the USA PATRIOT Act, applicable
Laws comprising or implementing the Bank Secrecy Act and applicable Laws
administered by the United States Treasury Department’s Office of Foreign Asset
Control (as any of the foregoing Laws may from time to time be amended, renewed,
extended, or replaced).
“Approval” means any license, permit, consent, approval, authorization,
registration, filing, waiver, exemption, clearance, qualification or
certification, including all pending applications therefor or renewals thereof,
issued by, made available by or filed with any Government Authority.
“Books and Records” means all books, records, information, files, manuals,
databases and other materials maintained by or on behalf of the Company in any
medium (including, where available, digital media), including all customer,
vendor and mailing lists and databases, advertising materials, files and
correspondence, market research studies and surveys, operating data and plans,
production data, technical documentation (design specifications, functional
requirements, operating instructions, logic manuals, flow charts, etc.), user
documentation (installation guides, user manuals, training materials, release
notes, working papers, etc.), equipment repair, maintenance and service records,
sales and promotional materials and records, purchasing and billing records,
research and development files, data, intellectual property disclosures, media
materials, accounting files and records, sales order files, personnel records
and all lists of and all rights in and to the information contained therein.
“Business Day” means any day other than a Saturday, Sunday or day on which banks
are permitted to close in the State of Virginia.

 

 

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“Business Material Adverse Effect” means any fact, event, change, development or
effect that, individually or together with any one or more other facts, events,
changes, developments or effects, is materially adverse to (a) the assets,
operations, capitalization, reasonably likely business prospects, results of
operations or financial condition of the Business, or (b) the ability of the
Member and the Company to consummate the transactions contemplated by this
Agreement, except to the extent resulting from (u) changes in general local,
domestic, foreign, or international economic conditions, (v) changes affecting
generally the industries or markets in which the Company operates the Business,
(w) acts of war, sabotage or terrorism, military actions or the escalation
thereof, (x) any changes in applicable laws or accounting rules or principles,
including changes in GAAP, (y) any other action required by this Agreement, or
(z) the announcement of the transactions contemplated by this Agreement
(provided, however, with respect to each of clauses (u) through (x) above, that
such general conditions do not affect the Business in a disproportionate
manner).
“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
“COBRA” means the group health plan continuation coverage requirements of
Section 4980B of the Code, Sections 601 through 608 of ERISA and the applicable
provisions of the American Recovery and Reinvestment Act of 2009.
“Code” means the Internal Revenue Code of 1986, as amended, and all Regulations
promulgated thereunder.
“Company Employee” means any individual who is employed or engaged as a
consultant or independent contractor by the Company on the Transition Date.
“Company Indebtedness” means any Indebtedness of the Company outstanding as of
immediately prior to the Closing plus any costs or expenses arising or resulting
from the payment of any such Indebtedness prior to the Closing (including any
pre-payment fees or penalties).
“Company Intellectual Property” means all Intellectual Property owned, licensed,
used or held by the Company.
“Company Services” means the services that the Company offers or provides or has
previously offered or provided.
“Company Transaction Expenses” means all Transaction Expenses of the Company
outstanding as of immediately prior to the Closing.
“Contract” means any loan agreement, indenture, letter of credit (including
related letter of credit applications and reimbursement obligations), mortgage,
security agreement, pledge agreement, deed of trust, bond, note, guarantee,
surety obligation, warranty, license, franchise, permit, power of attorney,
invoice, purchase order, sales order, lease, endorsement agreement, and any
other agreement, contract, instrument, obligation, offer, commitment, plan,
arrangement, understanding or undertaking, written or oral, express or implied,
to which a Person is a party or by which any of its properties, assets or
Intellectual Property are bound, in each case as amended, supplemented, waived
or otherwise modified.
“Court” means any court or arbitration tribunal of any country or territory, or
any state, province or other subdivision thereof.

 

 

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“Employee Benefit Plans” means each plan, program, policy, practice, contract,
agreement or other arrangement providing for compensation, pension, retirement,
cash balance, money purchase, savings, profit sharing, annuity, deferred
compensation, bonus, incentive (including cash, equity option, equity bonus,
equity appreciation, phantom equity, restricted equity and equity purchase),
medical, dental, vision, hospitalization, long-term care, prescription drug and
other health, employee assistance, cafeteria, flexible benefits, life insurance,
short and long term disability, vacation pay, severance or other termination
pay, other welfare and fringe benefit or remuneration of any kind, whether
written or unwritten or otherwise funded or unfunded, including all employee
benefit plans within the meaning of Section 3(3) of ERISA which is sponsored,
maintained, contributed to or required to be contributed to, by the Company or
any ERISA Affiliate for the benefit of any employee, officer or Member of the
Company or under which the Company or any ERISA Affiliate has or may have any
current or future liability or obligation.
“Environmental Law” means any Law or Order relating to the environment or
occupational health and safety, including any Law or Order pertaining to
(i) treatment, storage, disposal, generation and transportation of Materials of
Environmental Concern; (ii) air, water and noise pollution; (iii) the protection
of groundwater, surface water or soil; (iv) the release or threatened release
into the environment of Materials of Environmental Concern, including emissions,
discharges, injections, spills, escapes or dumping; or (v) storage tanks,
vessels, containers, abandoned or discarded barrels, and other closed
receptacles used for Materials of Environmental Concern. As used above, the
terms “release” and “environment” shall have the meaning set forth in CERCLA.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and all Regulations promulgated thereunder.
“ERISA Affiliate” means any person, trade, business or other entity treated as a
single employer with the Company under Sections 414(b), (c) or (m) of the Code
or Section 4001(a)(14) of ERISA.
“Excepted Representations” means the representations and warranties set forth in
Sections 3.1 (Organization, Good Standing and Qualification), 3.2 (Subsidiaries
and Investments), 3.3 (Ownership of the Company), 3.4 (Authorization; Binding
Obligation), 3.7 (Business Licenses), 3.8(a) (Title to and Condition of
Properties; Sufficiency of Assets; Ownership of Assets), 3.15 (Compliance with
Laws) 3.16(e)-(f) (Employment Matters), 3.17 (No Brokers), 3.18 (Taxes), 3.20
(Transactions with Affiliates); Sections 4.1 (Organization; Good Standing and
Qualification), 4.2 (Authority; Execution; Enforceability), and 4.3 (Title to
Company Membership Percentages); and Sections 5.1 (Organization; Good Standing
and Qualification), 5.2 (Authorization; Binding Obligation), and 5.3 (Consents
and Approvals) hereof.
“GAAP” means generally accepted accounting principles in the United States.

 

 

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“Governmental Authority” means: (a) any nation, state, county, city, town,
municipality, or other jurisdiction of any nature; (b) any federal, state,
municipal or local governmental or quasi-governmental entity or authority of any
nature; (c) any Court or tribunal exercising or entitled to exercise judicial
authority or power of any nature; (d) any multinational organization or body
exercising any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature; and (e) any department or
subdivision of any of the foregoing, including any commission, branch, board,
bureau, agency, official or other instrumentality exercising or entitled to
exercise any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
“Government Bid” means any offer, proposal or quote made by the Company prior to
the Closing Date which is outstanding and which, if accepted, would result in a
Government Contract.
“Government Contract” means any contract, subcontract, teaming agreement or
arrangement, joint venture, basic ordering agreement, blanket purchasing
agreement, Federal Supply Schedule contract, pricing agreement, CRADA, letter
agreement, grant or other similar Contract of any kind, between the Company, on
the one hand, and (a) any Governmental Authority, (b) any prime contractor of a
Governmental Authority in its capacity as a prime contractor, or (c) any
subcontractor with respect to any Contract of a type described in clauses (a) or
(b) of this definition, on the other hand. 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.
“Indebtedness” means Liabilities (including Liabilities for principal, accrued
interest, penalties, fees and premiums) (i) for borrowed money, (ii) evidenced
by bonds, debentures, notes or similar instruments, (iii) upon which interest
charges are customarily paid (other than obligations accepted in connection with
the purchase of products or services in the ordinary course of business),
(iv) under conditional sale or other title retention agreements, (v) issued or
assumed as the deferred purchase price of property or services (other than
accounts payable to suppliers incurred in the ordinary course of business and
paid when due), (vi) of others secured by (or for which the holder of such
Liabilities has an existing right, contingent or otherwise, to be secured by)
any Lien or security interest on property owned or acquired by the Person in
question whether or not the obligations secured thereby have been assumed and
(vii) under leases required to be accounted for as capital leases under GAAP.
“Intellectual Property” means worldwide trademarks, service marks, trade names,
trade dress, designs, logos, slogans and general intangibles of like nature,
together with all goodwill related to the foregoing (whether registered or not,
but including any registrations and applications for any of the foregoing)
(collectively, “Trademarks”); patents (including the ideas, inventions and
discoveries described therein, any pending applications, any registrations,
patents or patent applications based on applications that are continuations,
continuations-in-part, divisional, reexamination, reissues, renewals of any of
the foregoing and applications and patents granted on applications that claim
the benefit of priority to any of the foregoing) (collectively, “Patents”);
works of authorship or copyrights (including any registrations, applications and
renewals for any of the foregoing) and other rights of authorship (collectively,
“Copyrights”); trade secrets and other confidential or proprietary information,
know-how, confidential or proprietary technology, processes, work flows,
formulae, algorithms, models, user interfaces, customer, supplier and user
lists, databases, pricing and marketing information, inventions, marketing
materials, inventions and discoveries (whether patentable or not) (collectively,
“Trade Secrets”); computer programs and other Software, macros, scripts, source
code, object code, binary code, methodologies, processes, work flows,
architecture, structure, display screens, layouts, development tools,
instructions and templates; published and unpublished works of authorship,
including audiovisual works, databases and literary works; rights in, or
associated with a person’s name, voice, signature, photograph or likeness,
including rights of personality, privacy and publicity; rights of attribution
and integrity and other moral rights; Uniform Resource Locators (URLs) and
Internet domain names and applications therefor (and all interest therein), IP
addresses, adwords, key word associations and related rights; all other
proprietary, intellectual property and other rights relating to any or all of
the foregoing; all copies and tangible embodiments of any or all of the
foregoing (in whatever form or medium, including electronic media); and all
rights to sue for and any and all remedies for past, present and future
infringements of any or all of the foregoing and rights of priority and
protection of interests therein under the Laws of any jurisdiction.

 

 

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“IRS” means the United States Internal Revenue Service and, to the extent
relevant, the United States Department of Treasury.
“Knowledge of the Company” (and similar terms and phrases) means the actual
knowledge of any of Jenny Johnson, Stephen J. Bernstein and Jay A. Turtora, and
any knowledge which was or could reasonably have been obtained by such Persons
in the prudent exercise of their duties or upon due inquiry of those employees
reporting thereto, whose duties would, in the normal course of business affairs,
result in such employees having knowledge concerning the subject in question.
“Knowledge of the Member” (and similar terms and phrases) means the actual
knowledge of Stephen J. Bernstein and Jay A. Turtora, and any knowledge which
was or could reasonably have been obtained by such Persons in the prudent
exercise of their duties or upon due inquiry of those employees reporting
thereto, whose duties would, in the normal course of business affairs, result in
such employees having knowledge concerning the subject in question.
“Laws” means all laws, statutes, codes, written policies, licensing
requirements, ordinances and Regulations of any Governmental Authority,
including all Orders, having the effect of law in each such jurisdiction.
“Legal Expenses” means reasonable attorney’s, accountants’, investigators’, and
experts’ fees, and expenses reasonably sustained or incurred in connection with
the defense or investigation of any Losses.
“Liabilities” means any debts, liabilities, obligations, claims, charges,
damages, demands and assessments of any kind, including those with respect to
any Governmental Authority, whether accrued or not, known or unknown, disclosed
or undisclosed, fixed or contingent, asserted or unasserted, liquidated or
unliquidated, whenever or however arising (including, those arising out of any
contract or tort based on negligence or strict liability) and whether or not the
same would be required by GAAP to be reflected in financial statements or
disclosed in the notes thereto.

 

 

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“Lien” means any mortgage, easement, right of way, charge, claim, community
property interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction or adverse claim of any kind,
including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership, or any other encumbrance or
exception to title of any kind.
“Losses” means losses, damages, liabilities, demands, taxes, sanctions,
deficiencies, assessments, judgments, costs, interest, penalties and expenses
(including reasonable attorneys’ fees).
“Materials of Environmental Concern” means any substances, chemicals, compounds,
solids, liquids, gases, materials, pollutants or contaminants, hazardous
substances (including as such term is defined under CERCLA), solid wastes and
hazardous wastes (including as such terms are defined under the Resource
Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum
products, asbestos or substances containing asbestos, polychlorinated biphenyls
or any other material subject to regulation under any Environmental Law.
“Open Source Software” means (i) any software that requires as a condition of
use, modification and/or distribution of such software, that such software:
(a) be disclosed or distributed in source code, (b) be licensed for the purpose
of making derivative works, and/or (c) can be redistributed only free of
enforceable Intellectual Property rights, and/or (ii) any software that
contains, is derived in any manner (in whole or in part) from, or statically or
dynamically links against any software specified in (i). For exemplary purposes
only, and without limitation, any software modules or packages licensed or
distributed under any of the following licenses or distribution models shall
qualify as Open Source Software: (a) the GNU General Public License or
Lesser/Library GPL, (b) the Artistic License, (c) the Mozilla Public License,
(d) the Common Public License, (e) the Sun Community Source License, and (f) the
Sun Industry Standards Source License.
“Order” means any judgment, order, writ, injunction, ruling, decision or decree
of, or any settlement under the jurisdiction of any Governmental Authority.
“Ordinary Course of Business” means the usual and ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) of the Company.
“Organizational Documents” means, with respect to any corporation, those
instruments that at the time constitute its corporate charter as filed or
recorded under the Laws of the jurisdiction of its incorporation, including the
articles or certificate of incorporation, organization or association, and its
by-laws or memorandum of association, and with respect to any limited liability
company, those instruments that at the time constitute its certificate of
formation as filed or recorded under the Laws of the jurisdiction of its
organization, and its operating agreement or limited liability company
agreement, in each case including all amendments thereto, as the same may have
been restated and, with respect to any other entity, the equivalent
organizational or governing documents of such entity.

 

 

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“Person” means an individual, corporation, partnership, association, trust,
unincorporated organization, limited liability company or other legal entity.
“Personally Identifiable Information” means information that can be used to
identify or contact Persons, which may include their first and last name,
physical address, e-mail address and telephone number.
“Regulation” means any rule or regulation of any Governmental Authority.
“Related Agreements” means the Bill of Sale, the Non-competition Agreements and
the Employment Agreement.
“Software” means computer programs, known by any name, including all versions
thereof, and all related documentation, training manuals and materials, user
manuals, technical and support documentation, source code and object code, code
libraries, debugging files, linking files, program files, data files, computer
and related data, field and date definitions and relationships, data definition
specifications, data models, program and system logic, interfaces, program
modules, routines, sub-routines, algorithms, macros, scripts, compiler
directives, program architecture, design concepts, system designs, program
structure, sequence and organizations, screen displays and report layouts and
all other material related to any such computer programs.
“Subsidiary” means, with respect to any Person, any corporation, partnership,
joint venture, limited liability company, trust or other legal entity of which
such Person (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, more than fifty percent (50%) of the stock or
other equity interests in such entity.
“Tax Returns” means any and all returns, declarations, reports, claims for
refunds and information returns or statements relating to Taxes, including all
schedules or attachments thereto and including any amendment thereof, required
to be filed with any Governmental Authority, including consolidated, combined
and unitary tax returns.
“Taxes” means all taxes and governmental impositions of any kind in the nature
of (or similar to) taxes, payable to any Governmental Authority, including those
on or measured by or referred to as income, franchise, profits, gross receipts,
capital, ad valorem, custom duties, alternative or add-on minimum taxes,
estimated, environmental, disability, registration, value added, sales, use,
service, real or personal property, capital stock, license, payroll,
withholding, employment, social security, workers’ compensation, unemployment
compensation, health insurance, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, and interest,
penalties and additions to tax imposed with respect thereto.
“Trading with the Enemy Act” means the Trading with the Enemy Act of 1917, 50
U.S.C. §1, et. seq., and any Regulations thereunder, as the same may be amended
from time to time.
“WARN” means the Worker Adjustment and Retraining Notification Act, as amended,
and the Regulations promulgated thereunder.