Document:

Exhibit 10.2 Amended and Restated Agreement

AMENDED AND RESTATED

LOAN, PLEDGE AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED LOAN, PLEDGE AND SECURITY AGREEMENT (the “Loan Agreement”) dated as of this 5th day of December, 2013, by and among SOFTECH, INC., a Massachusetts corporation with offices at 650 Suffolk Street, Suite 415, Lowell, Massachusetts (the “Borrower") and PRIDES CROSSING CAPITAL FUNDING, L.P. (the “Lender”), as successor to  PRIDES CROSSING CAPITAL, L.P. (“PCC”) and PRIDES CROSSING CAPITAL-A, L.P. (“PCCA”), each with offices at  800 Boylston Street, Suite 2220, Boston, Massachusetts 02199 (PCC and PCCA are collectively the “Original Lenders”)  amends and restates in its entirety that certain Loan, Pledge and Security Agreement dated as of May 10, 2013 (as amended, the “Original Loan Agreement”) by and between the Borrower and the Lender (as successor to the Original Lenders).

RECITALS

WHEREAS, on May 10, 2013 the Borrower executed that certain (i) $1,426,410 Term Note, dated as of the date herein, in favor of PCC (“Term Note I”), (ii) $1,273,590 Term Note, dated as of the date herein, in favor of PCCA (“Term Note II”) and (iii) the Original Loan Agreement.  To secure all obligations under Term Note I and Term Note II (each a “Term Note”, and collectively the “Original Term Notes”), as well as all obligations under the Original Loan Agreement and all other Loan Documents, the Borrower granted the Original Lenders a security interest in all of the Borrower’s assets, and pledged one hundred percent (100%) of all equity interests owned by the Borrower in its Domestic Subsidiaries, and sixty-five percent (65%) of all equity interests owned by the Borrower in its Foreign Subsidiaries.

WHEREAS, on December 1, 2013 the Original Lenders and the Lender executed that certain Master Assignment Agreement, pursuant to which the Original Lenders assigned, sold, transferred and conveyed to the Lender all Loan Documents, including without limitation the Original Term Notes and Original Loan Agreement.

WHEREAS, the Borrower acknowledged and agreed to the assignment of the Loan Documents from the Original Lenders to the Lender, agreed to pay down principal under the Original Term Notes, combine the Original Term Notes into a single amended and restated term note, and purchase the Warrants from the Original Lenders. 

WHEREAS, the Borrower and Lender agreed to enter into this Loan Agreement, which shall govern all terms, conditions, obligations and agreements under the new amended and restated term note, as well as continue the existing security interests in Borrower’s assets to secure all Indebtedness under the Loan Documents. 

AGREEMENT

In consideration of the premises and of the mutual covenants herein contained and to induce Lender to continue the extension of credit to the Borrower, the parties agree as follows:

SECTION 1

DEFINITIONS

1.1

Definitions.

Capitalized terms that are not otherwise defined herein shall have the meanings set forth in Exhibit 1.1 attached hereto. Terms not otherwise defined herein or in Exhibit 1.1 shall have the meanings ascribed to them, if any, in the Code.

SECTION 2

TERM LOAN

2.1

Amended and Restated Term Note.  On the date hereof the Borrower shall execute and deliver to the Lender the Term Note, which replaces, amends and restates the Original Term Notes.

2.2

Payments.  On the date hereof the Borrower agrees to pay the Lender the following: 

(a)

One Million Three Hundred and Fifty Thousand Dollars ($1,350,000), by authorizing Lender’s set off of all funds held in escrow by the Original Lender pursuant to the October Consent Letter and the November Escrow Letter, plus Three Hundred and Fifty Thousand Dollars ($350,000) in immediately available funds, via wire transfer.  All amounts paid under this Subsection (a) shall be applied towards Principal due under the Term Note.

(b)

Eighty- One Thousand Dollars ($81,000) in immediately available funds, via wire transfer.  The payment under this Subsection (b) satisfies the yield maintenance fee under Section 2.8 of the Original Loan Agreement.

(c)

Nineteen Thousand Dollars ($19,000) in immediately available funds, via wire transfer.  The payment under this Subsection (c) is in consideration for the Original Lenders’ transfer and return of the Warrants issued under the Warrant Agreement, and termination of the Warrant Agreement. 

(d)

Sixty-Eight Thousand Three Hundred Dollars ($68,300) in immediately available funds, via wire transfer.  The payment under this Subsection (d) pays interest that accrued under the Original Notes from October 1, 2013 through December 5, 2013. 

(e)

Twenty Thousand Six Hundred and Eighty-One Dollars and Thirty-Four Cents ($20,681.34) in immediately available funds, via wire transfer.  The payment under this Subsection (e) pays all legal fees and expenses of the Original Lenders and the Lender incurred through the date hereof, and due under the Loan Documents. 

2.3

Interest Accrual.  Interest shall accrue on unpaid principal under the Term Note at the annual rate of fourteen percent (14%).  Detailed terms and conditions relating to the accrual of interest, accrual of default interest, late charges and payment terms are set forth in the Term Note.

2.4

Payment of Accrued Interest. Commencing January 1, 2014, and continuing through December 1, 2014, on the first day of each calendar month the Borrower shall pay the Lender interest that accrued during the preceding month. 

2.5

Maturity.  On January 1, 2015 (the “Maturity Date”) the Borrower shall pay Lender all unpaid principal, accrued and unpaid interest, and all other unpaid amounts due under the Term Note, this Loan Agreement and all other Loan Documents in full.

2.6

Payment Terms.  All payments under the Term Note, this Loan Agreement and under all other Loan Documents, shall be made by the Borrower to the Lender, in United States currency, at Lender’s address specified above, or at such other address as Lender may specify in writing, in immediately available funds.  At any time after the date herein, the Lender shall have the right to require that the Borrower authorize automatic deductions of any and all payments due from the Deposit Account.  If the automatic deduction is established, yet insufficient funds exist in the Deposit Account to fund a payment due under any of the Loan Documents the Borrower remains liable for such payment, and shall pay it in accordance with the terms of the Term Note, this Loan Agreement and all other Loan Documents.  

2.7

Application of Payments.  Payments received before an Event of Default will be applied (i) first to fees, expenses and other amounts due under the Term Note, this Loan Agreement and any other Loan Document, (ii) second, to accrued interest under the Term Note, and (iii) third to outstanding Principal under the Term Note.  Payments received after an Event of Default will be applied to the amounts due under the Term Note, this Loan Agreement and all other Loan Documents, as the Lender determines in its sole discretion.

2.8

Prepayment.  The Borrower may, at any time prior to the Maturity Date, pre-pay all outstanding Principal due under the Term Note.  Partial voluntary pre-payments of Principal are not allowed.  If a pre-payment is made on or prior to September 30, 2014, Borrower shall pay the Lender a yield maintenance fee equal to the interest that would have accrued under the Term Note from the date of such prepayment through and including September 30, 2014.  If a pre-payment is made on or after October 1, 2014, no yield maintenance fee shall be due.  The Borrower may pre-pay accrued interest, accrued default interest, accrued late charges, fees, charges and expenses at any time, in each case without penalty.  All mandatory prepayments of principal shall be applied in accordance with Section 2.7.  Pre-paid Principal may not be reborrowed.  

2.9

Cross Default.  A Default under any obligation of the Borrower under one or more of the Loan Documents shall constitute a simultaneous default under the Term Note and this Loan Agreement.  

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2.10

Loan Security.  The Term Note, this Loan Agreement and all obligations under the other Loan Documents shall be secured by (i) a first priority security interest, subject to Permitted Liens, on all of the Collateral (the “Security Interest”) on the terms set forth in Section 3, (ii) a deposit account control agreement, by and between the Borrower, Lender and First Republic Bank, (iii) a source code escrow agreement, with an independent third party, in a form and substance reasonably acceptable to the Lender, (iii) a pledge of one hundred percent (100%) of all equity interests of Borrower’s domestic subsidiaries, and (iv) a pledge of sixty-five percent (65%) of all equity interests owned by the Borrower in the Foreign Subsidiaries.  Up to Five Hundred Thousand Dollars ($500,000) of the Indebtedness shall be personally guaranteed by Joseph Mullaney, pursuant to the Personal Guaranty.  The Personal Guaranty shall be secured by a pledge by Mr. Mullaney of all equity interests he owns in the Borrower.  In addition to the foregoing, Borrower will use its commercially reasonable efforts to obtain and deliver to the Lender, within ninety (90) days hereof, an unconditional assignment of Borrower’s payments and payment rights under the Mentor Contract. Notwithstanding anything to the contrary in the Loan Agreement, or under applicable law, if the grant of any security interests herein, the Guaranty, Mr. Mullaney’s pledge of SofTech Stock, or assignment of payments and payment rights under the Mentor Contract would result in the termination or breach of a Contract to which the Borrower is a party, or the Intellectual Property, then the applicable Contract or Intellectual Property will not be subject to the Security Interest and will not be considered a part of the Collateral, but in each case only to the extent, and for as long as, such relevant term is not terminated or rendered unenforceable or otherwise deemed ineffective by the Code or any other applicable law or a consent or waiver to such grant with respect to such term is not obtained.  Immediately upon the lapse, termination, unenforceability or ineffectiveness of any such term or the grant of a consent or waiver to such grant with respect to such term, the Collateral shall include, and the Borrower shall be deemed to have automatically granted a security interest in, any such Contract or Intellectual Property.

 

2.11

Insurance. Prior to the date of this Loan Agreement the Borrower shall obtain insurance on all of the Collateral on the terms set forth in Section 7.4.  All such insurance policies shall contain a standard lenders loss payment endorsement, and name the Lender as the first loss payee and an additional insured, as applicable, on terms satisfactory to the Lender.  If the Borrower receives any insurance proceeds arising from the loss, damage or theft of any of its assets, the Lender shall apply the amount received (i) first to amounts due under the Term Note in accordance with Section 2.7, (ii) second to amounts due under this Loan Agreement, and (iii) third, to amounts due under the other Loan Documents.  Notwithstanding anything herein to the contrary,  in the event of an insured loss, damage or theft of any assets having a value of ten thousand dollars ($10,000) or less, the Borrower may use the insurance proceeds received to replace such assets, and shall apply all excess proceeds in accordance with Section 2.11. 

2.12

Lender’s Records and Statement of Account.  All Advances of Principal, and interest thereon, and all default interest, late charges, fees and expenses shall be recorded in the books of the Lender, and shall be deemed accurate and correct, absent manifest error.  If the Lender provides the Borrower with a statement of account, such statement will be presumed complete and accurate and will, absent manifest error, be definitive and binding on the Borrower, unless objected to with specificity by the Borrower in writing within thirty (30) days after receipt.

2.13

Increased Costs.  If the adoption or change in any law or regulation, or the interpretation or application thereof, or compliance by the Lender with any request or directive from any central bank, governmental authority or the London interbank market shall impose either (i) a tax on either Term Note, the Loan Agreement, the other Loan Documents, any loan by the Lender to the Borrower, (ii) or modify any reserve, special deposit, compulsory loan or similar requirement against assets, deposits or other liabilities arising from advances, loans or other extensions of credit by the Lender, or (iii) any other condition that results in an increase in the Lender’s costs or reduces the Lender's rate of return on capital, which such Lender deems material, then the Borrower shall promptly pay such Lender, upon demand, additional amounts necessary to compensate the Lender for such increased costs or reduced rate of return.  The protection of this Section 2.13 shall be available to the Lender regardless of any possible contention of invalidity or inapplicability with respect to the applicable law, regulation or condition provided it applies to all borrowers on a non-discriminatory basis.  Any notice from the Lender setting forth the amount or amounts necessary to compensate such Lender under this Section 2.13, when delivered to the Borrower, shall be conclusive absent manifest error.  This provision shall survive the termination of this Loan Agreement.

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SECTION 3

SECURITY AGREEMENT

3.1

The Borrower’s Grant of Security Interest.  As security for the payment and performance of any and all of the Indebtedness, including without limitation all amounts due under the Term Note, this Loan Agreement and all other Loan Documents, and the performance of all obligations and covenants of the Borrower hereunder and under the Loan Documents, certain or contingent, now existing or hereafter arising, which are now, or may at any time or times hereafter be owing by the Borrower to the Lender pursuant to the Loan Documents, the Borrower hereby pledges to the Lender and grants the Lender a continuing security interest in and general Lien upon and right of set-off against, all right, title and interest of the Borrower in and to the Collateral, including without limitation all security deposits, all Deposit Accounts and all Intellectual Property, whether now owned or hereafter acquired by the Borrower. The Borrower further grants the Lender a right of set-off against the Borrower’s property held by the Lender, now or hereinafter in the possession, custody or control or in transit to the Lender.

3.2

Exercise of Rights.  Except as set forth herein, or under applicable law, The Lender shall not be obligated to exercise any degree of care greater than the degree of care as it relates to its own assets in connection with any Collateral in their possession, to take any steps necessary to preserve any rights in any of the Collateral or to preserve any rights therein of or against all other parties.  No segregation or specific allocation by the Lender of specified items of Collateral against any liability of the Borrower shall waive or affect any security interest in or Lien against other items of Collateral or any of the Lender's options, powers or rights under this Loan Agreement, the Loan Documents or applicable law.

3.3

Post Default Communications.  Following and during a continuing Event of Default, the Lender may at any time and from time to time, with or without notice to the Borrower (i) transfer into the name of the Lender, or the name of the Lender's nominee, any of the Collateral, (ii) notify any holder of any Collateral to transfer Collateral in such party’s possession directly to the Lender,  (iii) notify any and all obligors under one or more accounts receivable to pay and turnover any amount due to the Lender, and (iv) receive and direct the disposition of any proceeds of any Collateral. Once any such notice has been given to any Person, the Borrower shall not give any contrary instruction to such Person without the Lender’s written consent, until such time as the Event of Default is no longer continuing.

3.4

Waiver of Marshaling.  The Borrower waives any right it may have to require marshaling of its assets, among and between each Original Lender and the Lender.

3.5

Continuing Duty of the Borrower.  It is expressly agreed by the Borrower that, notwithstanding anything herein to the contrary, it remains liable under each of its respective contracts, Leases and each of its licenses to which it is a party (if any), to observe and perform all of the conditions and obligations to be observed and performed thereunder.  The Lender shall not have any obligation or liability under any contract, Lease or license by reason of or arising out of this Loan Agreement, or the granting of the Liens herein, or the receipt by Lender of any payment relating to any contract or license pursuant hereto.  The Lender shall not be required or obligated in any manner to perform or fulfill any of the obligations of the Borrower, under or pursuant to any contract or license, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under contract or license, or to present or file any claims, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

3.6

Permitted Communications.  Prior to and during a continuing Event of Default the Lender may, in the name of the Borrower, or a third party, communicate (by mail, email, telephone, facsimile or otherwise) with Persons, parties to contracts or obligors in respect of Instruments, Accounts, Chattel Paper and/or payment intangibles to inquire about the amounts outstanding and status of such Instruments, Accounts, Chattel Paper and/or payment intangibles.  During a continuing Event of Default the Lender may at any time, in the Lender’s own name, the name of the Borrower, or in the name of the Lender’s nominee, communicate by mail, email, telephone, facsimile, email or otherwise with Persons, parties to or obligors under Instruments, Accounts, Chattel Paper and/or payment intangibles.

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3.7

Deposit Accounts.  As of the date hereof the Borrower maintains its Deposit Accounts at First Republic Bank.  The Borrower, Lender and First Republic Bank shall enter into a reasonably acceptable deposit account control agreement (a “DACA”).  Borrower may, in its sole discretion, move the Deposit Accounts to another FDIC insured depository institution, upon fifteen (15) days written notice to the Lender.  Before Borrower moves its Deposit Accounts to another institution the Borrower, Lender and the new bank shall enter into a new DACA.  If any depository institution, including without limitation First Republic Bank, refuses to enter into a DACA or terminates an existing DACA, the Borrower is prohibited from maintaining any of the Deposit Accounts at such institution.   

SECTION 4

PLEDGE OF SECURITIES and

GRANT OF SECURITY INTEREST

4.1

As security for the payment and performance of any and all of the Indebtedness, including without limitation all amounts due under the Term Note, this Loan Agreement, and all other Loan Documents, and the performance of all obligations and covenants of the Borrower hereunder and under the Loan Documents, certain or contingent, now existing or hereafter arising, which are now, or may at any time or times hereafter be owing by the Borrower to the Lender pursuant to the Loan Documents, the Borrower hereby pledges to the Lender and grants the Lender a continuing security interest in and general Lien upon and right of set-off against, all right, title and interests of the Borrower in the Pledged Subsidiary Equity. 

4.2

The certificates representing the Pledged Subsidiary Equity this Section 4 shall be delivered to and held by the Lender until all Indebtedness is paid in full.

4.3

Stock powers, substantially similar to the form stock power attached hereto as Exhibit 4.3, shall be executed in blank by the Borrower and together with this Loan Agreement delivered to PCC, for itself and as agent for PCCA.

4.4

Each Domestic Subsidiary and each Foreign Subsidiary shall cause their respective books and corporate records to reflect the Borrower’s pledge of such Subsidiary’s Equity Interests.

4.5

Upon the occurrence and during a continuing Event of Default, the Lender may affect the transfer of any Pledged Subsidiary Equity into the name of the Lender, or the Lender’s designee, and cause new certificates representing such securities to be issued in the name of the Lender, or the Lender's designee.

4.6

The Borrower will execute and deliver such documents, and take or cause to be taken such actions, as the Lender may reasonably request to perfect or continue the perfection of the Lender’s security interest in the Pledged Subsidiary Equity.

SECTION 5

CONDITIONS PRECEDENT TO ENTERING INTO THIS LOAN AGREEMENT

5.1

Conditions Precedent to Entering Into this Loan Agreement.  In addition to all other requirements set forth in this Loan Agreement and the other Loan Documents, the Lender will not execute this Loan Agreement and continue to advance credit under the Term Note, unless and until the following conditions shall have been satisfied:

(a)

Loan Documents.  The Borrower has executed and delivered to the Lender all of the Loan Documents, all in a form and substance acceptable to the Lender;

(b)

The Borrower’s Supporting Documents.  The Borrower has delivered to the Lender the following documents:

 

(i)

Certified resolutions of the boards of directors for the Borrower, signed by Borrower’s corporate secretary, or another authorized officer, or such other Person, authorizing the execution, delivery and performance of the Loan Documents; and

(ii)

A good standing certificate for the Borrower, certified by the appropriate government officials in the Borrower’s jurisdiction of organization.

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(c)

Pay Down of Term Notes.  All payments set forth in Section 2.2 herein have been paid in full;

.

(d)

Fees and Expenses.  Payment of all reasonable fees due and reimbursement of all costs incurred by the Lender, and evidence of payment to other parties of all fees or costs which the Borrower is required to pay under this Loan Agreement; 

 

(e)

Insurance. The Lender receipt of a written insurance binder which amends all of Borrower's current property and casualty insurance policies to (1) list the Lender as first loss payee and additional insured.  Within thirty (30) days after the date hereof the Borrower will deliver to the Lender a lender’s loss payment endorsement;

(f)

Security Interests.  UCC-3/Amendment shall have been duly recorded or filed in the manner and places required by law to assign, establish, preserve, protect and perfect the interests and rights created or intended to be created by the security interest granted by the Borrower to the Lender to secure the Borrower’s obligations under the Loan Documents; and all taxes, fees and other charges in connection with the execution, delivery and filing of such financing statements shall duly have been paid;

(g)

Material Adverse Effect.  There shall have been no change that could have a Material Adverse Effect on the condition, financial or otherwise, of the Borrower, individually, or the Borrower, the Domestic Subsidiaries and the Foreign Subsidiaries taken as a whole, or the Collateral;

(h)

Source Code Escrow. Borrower, the Lender and Iron Mountain have executed and delivered an amendment to the Source Code Escrow Agreement, reasonably acceptable to the Lender, pursuant to which the Lender replaces the Original Lenders as a party to such Source Code Escrow Agreement;

(i)

Deposit Accounts.  The Borrower shall deliver to the Lender a list of all bank and deposit accounts that it maintains with any Person, including without limitation all Deposit Accounts at First Republic Bank; and 

  

(j)

Additional Documents.   The Borrower shall have delivered to Lender all such other opinions, documents, certificates and other assurances that Lender or its counsel may reasonably require.

SECTION 6

REPRESENTATIONS AND WARRANTIES

6.1

In order to induce Lender to enter into this Loan Agreement, the Borrower makes the following representations and warranties, all of which shall survive the execution and delivery of this Loan Agreement and the Loan Documents.  Unless otherwise specified, the following representations and warranties shall be deemed made as of the date hereof:

(a)

Valid Existence.   Borrower and each Subsidiary are corporations duly organized, validly existing and in good corporate standing under the laws of the jurisdictions of their respective organization, and are duly qualified or licensed to transact business in all places where the failure to be so qualified would have a Material Adverse Effect on them.

(b)

Power to Act.

 Borrower and each Domestic Subsidiary has the requisite power to make, execute and perform the Loan Documents executed by them, and all such instruments will constitute the legal, valid and binding obligations of the Borrower and Domestic Subsidiaries, enforceable in accordance with their respective terms, subject only to the Borrower’s, or Domestic Subsidiaries' bankruptcy, insolvency, reorganization, or other similar laws relating to or staying the enforcement of remedies of creditors generally, and the effect of rules of law governing, or practices of courts with respect to, specific enforcement, injunctive relief and other equitable remedies generally.

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(c)

Authority.  The execution and delivery of the Loan Documents by the Borrower and Domestic Subsidiaries, and performance thereof by the Borrower and Domestic Subsidiaries, has been duly authorized by all necessary corporate action, and do not violate any provision of law or regulation, or any writ, order or decree of any court or governmental or regulatory authority or agency or any provision of the governing instruments of such Person, and do not, with the passage of time or the giving of notice, result in a breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of such Person pursuant to, any law, regulation, instrument or agreement to which any such Person is a party or by which any such Person or its respective properties may be subject, bound or affected.

(d)

Financial Condition.  Other than as disclosed in financial statements delivered to the Lender on or prior to the date hereof, the Borrower has no material direct or contingent obligations or liabilities (including any guarantees or leases) or any material unrealized or anticipated losses from any commitments of such Person except as described on Exhibit 6.1(d).  All financial statements of the Borrower have been prepared in accordance with GAAP and fairly present the financial condition of the Borrower, as of the date thereof.  

(e)

Knowledge of Material Adverse Facts.  The Borrower is not aware of any material adverse fact (other than facts which are generally available to the public and not particular to the Borrower, such as general economic or industry trends) concerning the condition of the Borrower or any Subsidiary, which has not been fully disclosed to Lender, including any material adverse change in the operations or financial condition of the Borrower or any Subsidiary, since the date of the most recent financial statements delivered to Lender.

(f)

Solvency.  The Borrower and each Subsidiary are Solvent, and after consummation of the transactions set forth in this Loan Agreement and the other Loan Documents the Borrower and each Domestic Subsidiary will be and remain Solvent.

(g)

Litigation.  Except as disclosed in Exhibit 6.1(g), there are no suits or proceedings pending, or to the knowledge of the Borrower threatened, before any court or by or before any governmental or regulatory authority, commission, bureau or agency or public regulatory body against or affecting the Borrower or any Subsidiary, or their respective assets or properties, which if adversely determined would have a Material Adverse Effect.

(h)

Adverse Effect of Agreements.  Neither the Borrower nor any of its Subsidiaries are in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any agreement or instrument to which any of them are a party, or any law, regulation, decree, order or the like applicable to them. 

(i)

Authorizations.   All material authorizations, consents, approvals, certificates and licenses required under applicable law or regulation for the ownership or operation of the property owned or operated by the Borrower, and each Subsidiary, or for the conduct of any business in which they are engaged have been duly issued and are in full force and effect, and they are not in default, nor to their respective knowledge has any event occurred which with the passage of time or the giving of notice, or both, would constitute a default, under any of the terms or provisions of any part thereof, or under any order, decree, ruling, regulation, or other decision or instrument of any governmental commission, bureau or other administrative agency or public regulatory body having jurisdiction over the Borrower, or any Subsidiary, which default would have a Material Adverse Effect on the Borrower or any Subsidiary.  No approval, consent or authorization of, or filing or registration with, any governmental commission, bureau or other regulatory authority or agency is required with respect to the execution, delivery or performance of any Loan Document.

(j)

Title.  The Borrower has good title to all of its assets and properties shown in its financial statements, free and clear of all Liens, except Permitted Liens.  The Borrower has full ownership rights in the Collateral, subject to the Permitted Liens.  

(k)

Collateral.  The security interests granted to Lender herein and pursuant to any other Loan Document with the Lender (a) constitute and, as to subsequently acquired property included in the Collateral, will constitute, security interests under the Code and (b) are, and as to such subsequently acquired Collateral will be superior and prior to the rights of all third persons, now existing or hereafter arising, subject to the Permitted Liens.  All of the Collateral is intended for use solely in the Borrower’s businesses.

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(l)

Taxes.  The Borrower and all Domestic Subsidiaries have filed all federal, state and local income and other tax returns which are required to be filed, and have paid all taxes as shown on said returns and all taxes, including withholding, FICA and ad valorem taxes, shown on all assessments received by it to the extent that such taxes have become due, or has set aside reserves to timely pay such taxes and/or assessments.  Neither Borrower nor any of the Domestic Subsidiaries are subject to any federal, state or local tax Liens, other than Permitted Liens, nor has such Person received any notice of deficiency or other official notice of delinquent taxes. The Borrower and each Subsidiary, have paid all sales and excise taxes payable by them, to the extent such taxes have become due.

(m)

Labor Law Matters.  To the Borrower’s knowledge no goods or services have been or will be produced, provided or performed by the Borrower or any Subsidiary in violation of any applicable labor laws or regulations or any collective bargaining agreement or other labor agreements or in violation of any minimum wage, wage-and-hour or other similar laws or regulations applicable to the Borrower or Subsidiary, which will have a Material Adverse Effect on the Borrower or a Subsidiary.

(n)

Judgment Liens.   Except as set forth in Exhibit 6.1(n), neither the Borrower, any Subsidiary, nor any of their respective assets, are subject to any unpaid judgments (whether or not stayed) or any judgment liens in excess of twenty-five thousand dollars ($25,000), in any jurisdiction.  Following the Closing Date and until all amounts due under the Loan Documents are paid in full, the Borrower shall amend and deliver to Lender Exhibit 6.1(n) as soon as (i) judgments and judgment liens listed therein are dismissed, satisfied and/or released and (ii) additional judgments and/or judgment liens in excess of twenty-five thousand dollars ($25,000) are entered against the Borrower or filed against its assets. 

(o)

Subsidiaries.  A complete list of the Borrower’s Subsidiaries is set forth in Exhibit 6.1(o).

(p)

ERISA.  The Borrower has furnished to Lender true and complete copies of the latest annual report required to be filed pursuant to Section 104 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with respect to each employee benefit plan or other plan maintained for employees of the Borrower, and covered by Title IV of ERISA (a "Plan"), and no Termination Event (as hereinafter defined) with respect to any Plan has occurred and is continuing.  For the purposes of this Loan Agreement, a "Termination Event" shall mean a "reportable event" as defined in Section 4043(b) of ERISA, or the filing of a notice of intent to terminate under Section 4041 of ERISA.  Neither the Borrower nor any of its Subsidiaries have any unfunded liability with respect to any such Plan.

(q)

Investment Company Act.   The Borrower is not an "investment company" as defined in the Investment Company Act of 1940, as amended.

(r)

Compliance with Covenants; No Default.   The Borrower is, and upon funding of the Term Note will be in compliance with all of the covenants hereof. No Event of Default has occurred and is continuing, and the execution, delivery and performance of the Loan Documents and the funding of the Term Note will not cause an Event of Default.  

(s)

Full Disclosure.   There is no material fact, which is known by the Borrower that the Borrower has not disclosed to Lender that would have a Material Adverse Effect.  No Loan Document, nor any agreement, document, certificate or statement delivered by the Borrower to Lender, knowingly contains any untrue statement of a material fact or omits to state any material fact that is known or which should be known by the Borrower that is necessary to keep the other statements from being misleading.

(t)

Warehousemen, Consignees and Bailees.  None of the Collateral is (i) stored or located in a warehouse or other location, which would give the owner, tenant, sub-landlord, sub-tenant, operator, manager or warehouseman a claim to or lien on the Collateral, (ii) in the possession or control of a third party on consignment and (iii) in the possession or control of a third party bailee.

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6.2

Updates.  Following the Closing Date the Borrower shall, from time to time, deliver to Lender updated schedules to this Section 6 with respect to facts and circumstances arising after the Closing Date.  Provided that such updated schedules do not have a Material Adverse Effect, the same shall be incorporated herein.  

 

SECTION 7

AFFIRMATIVE COVENANTS

7.1

Payment and Performance.  The Borrower will duly and punctually pay all interest and principal as and when it becomes due to the Lender under the Loan Documents, including without limitation the Term Note and this Loan Agreement, and will duly and punctually pay and perform all obligations to be paid or performed under this Loan Agreement, or pursuant to any instrument, document or agreement executed pursuant hereto.

7.2

Use of Loan Proceeds. The Borrower shall use the proceeds of the Term Note to (i) pay fees, costs and expenses due under the Term Note and this Loan Agreement, and all other Loan Documents, (ii) fund growth and working capital needs and (iii) fund operating expenses.

7.3

Maintenance of Business and Collateral.   The Borrower shall maintain all of its property and assets used or useful in the conduct of its business, and keep the same in working order and condition, ordinary wear and tear, fire and casualty excepted, and from time to time make, or cause to be made, all material needful and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be conducted properly and in accordance with standards generally accepted in businesses of a similar type and size at all times, and maintain and keep in full force and effect all licenses and permits reasonably necessary for the proper conduct of their respective businesses and operation of their respective properties.  Notwithstanding the foregoing, the Borrower may transfer, sell or dispose of Collateral which is obsolete, damaged, or no longer in use, so long as the gross proceeds generated by the transfer, sale, damage or disposal of such Collateral is used to either (i) replace or repair such transferred, sold, damaged or disposed of Collateral, or (ii) re-pay amounts due under the Term Note, this Loan Agreement and all other Loan Documents. 

7.4

Insurance.  

(a)

On or before the date of this Loan Agreement, and so long as any amount is due under any of the Loan Documents, the Borrower shall obtain and maintain property and casualty insurance on all of the Collateral, liability insurance, workers’ compensation insurance, and business interruption insurance, from good and responsible insurance companies reasonably satisfactory to Lender.  All insurance policies shall be in amounts and shall contain co-insurance and deductible provisions reasonably approved in advance by the Lender.  The Lender shall be named as the creditor/loss payee in all policies, under the name “PRIDES CROSSING CAPITAL FUNDING, L.P., its successors and assigns, as its interests may appear.” All such insurance may not be cancelled by the Borrower without first obtaining the Lender’s written consent, which consent must be obtained no less than thirty (30) days before the insurance will be cancelled.  If the insurance is cancelled, for any reason, the Lender may maintain the existing policy or policies or obtain new insurance.  All such premiums paid for by the Lender shall be added to, included and become the Indebtedness under this Loan Agreement, the Term Note, and all other Loan Documents.  The Lender reserves the right to require the Borrower, in the Lender’s reasonable discretion, to obtain accounts receivable insurance. 

(b)

On or before the date of this Loan Agreement, and so long as any amount is due under any of the Loan Documents, the Borrower shall obtain and maintain One Million Dollars ($1,000,000) of key man life insurance on the Guarantor, from insurance companies reasonably satisfactory to Lender. 

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7.5

Notice of Default.   The Borrower shall provide to the Lender prompt notice of (a) the occurrence and continuance of an Event of Default and what action (if any) the Borrower is taking to correct the same, (b) any litigation or changes in existing litigation, which includes a claim or claims against the Borrower in excess of fifty thousand dollars ($50,000), or any judgment in excess of fifty thousand dollars ($50,000), against it or any of its assets, (c) any damage or loss to property in excess of one hundred thousand dollars ($100,000), (d) any notice from taxing authorities as to claimed deficiencies in excess of twenty-five thousand dollars ($25,000) or any tax lien or any notice relating to alleged ERISA violations, (e) any ERISA Event, (f) any Termination Event, (g) any rejection, return, offset, dispute, loss or other circumstance having a Material Adverse Effect on any Collateral, (h) the cancellation or termination of, or any default under, any agreement to which the Borrower is a party, the termination of which, or default, will have a Material Adverse Effect on the Borrower, (i) any acceleration of the maturity of any Debt of the Borrower in excess of twenty-five thousand dollars ($25,000), and (j) any loss or threatened loss of licenses or permits, the loss of which will have a Material Adverse Effect on the Borrower, or its business.

7.6

Inspections.  The Borrower shall permit the Lender to inspect the Collateral, the Borrower’s business premises, business records and the Borrower’s other records and property (collectively a “Field Examination”) twice per year, so long as there is no Event of Default.  Upon an Event of Default that is continuing or if in the Lender’s commercially reasonable opinion the Borrower’s financial results have materially deteriorated; the Lender may conduct additional Field Examinations.  The Borrower shall permit Field Examinations at such times and in such manner as may be reasonably required by the Lender.  The reasonable cost of all such Field Examinations shall be paid by the Borrower, become part of the Indebtedness and shall not exceed $10,000 for any one Field Examination. 

7.7

Permitted Loans.  Simultaneous with a Permitted Loan the Borrower shall (i) deliver to the Lender any and all documents related to such Permitted Loan, including without limitation any and all notes evidencing such Permitted Loan (collectively “Permitted Loan Documents”), (ii) notify, in writing, each borrower under such Permitted Loan that the Lender holds a security interest in the Permitted Loan, and the Lender has possession of the Permitted Loan Documents.

7.8

Affiliate Contracts.  For avoidance of doubt, the Borrower may enter into contracts with its affiliates so long as such contracts are (i) in writing, (ii) promptly disclosed to the Lender and (iii) comply with applicable Internal Revenue Service standards and regulations. 

    

SECTION 8

FINANCIAL INFORMATION AND DISCLOSURES

8.1

Financial Information.  The Borrower shall maintain its books and records in accordance with GAAP.

8.2

Financial Information Furnished by the Borrower.  The Borrower shall furnish to the Lender the following periodic financial information:

(a)

Monthly.

(i)

Within ten (10) days after the end of each month an Account Receivable aging report, Accounts Payable aging report, and an updated rolling three (3) month cash flow forecast.

(ii)

Within thirty (30) days after the end of each month a Covenant Compliance Certificate that certifies and evidences Borrower’s compliance with the financial covenants set forth in Section 12 herein.  A draft Covenant Compliance Certificate is attached hereto as Exhibit 8.2(a).

(b)

Quarterly.

(i)

Within thirty (30) days after the end of each fiscal quarter a management prepared consolidated balance sheet, income statement and statement of cash flows, which reflect the Borrower’s and Subsidiaries'  financial condition and operating results, together with all supporting schedules, and certified by the Borrower as true and correct and fairly representing the financial condition of the Borrower, and that such statements are prepared in accordance with GAAP, except without footnotes and subject to normal year-end adjustments; and

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(c)

Annual Statements.

(i)

Within one hundred and twenty days (120) days after the end of each fiscal year, unqualified financial statements, including a balance sheet, income statement and statement of cash flows, audited by an accounting firm reasonably acceptable to the Lender, together with all supporting schedules, prepared in accordance with GAAP, and any management letter or letter of recommendation to and from Borrower's accounting firm; and

(ii)

Within thirty (30) days after the end of the fiscal year, a management prepared financial budget, including planned Capital Expenditures, for the upcoming fiscal year. 

8.3

Other Information.   The Borrower shall furnish to the Lender such other information reasonably requested by Lender from time to time concerning the business, properties or financial condition of the Borrower.

SECTION 9

COVENANTS OF COMPLIANCE AND COLLATERAL

9.1

Maintenance of Existence and Rights.   The Borrower shall preserve and maintain their corporate existence, authority to transact business, rights and franchises, trade names, patents, copyrights, trademarks and permits material and necessary to the conduct of its business. 

9.2

Payment of Taxes.  The Borrower shall pay before delinquent all of its debts and taxes, except for nonpayment of taxes being actively contested in accordance with law and with proper reserves maintained on its books and records.

9.3

Compliance; Hazardous Materials.   The Borrower shall comply in all material respects with all laws, regulations, ordinances and other legal requirements applicable to it, specifically including, without limitation, ERISA, all securities laws and all laws relating to hazardous materials and the environment, except to the extent that failure to comply will not have a Material Adverse Effect.  Unless approved in writing by Lender, the Borrower shall not engage in the storage, manufacture, disposition, processing, handling, use or transportation of any hazardous or toxic materials, except for ordinary and customary amounts of solvents, cleaners and similar materials used in the Borrower’s ordinary course of business in accordance with applicable laws.

9.4

Compliance with Assignment Laws.  The Borrower shall, if required by the Lender, comply with the Federal Assignment of Claims Act and any other applicable law relating to assignment of government contracts.

9.5

Compliance with Intellectual Property.  The Borrower shall maintain all of its Intellectual Property and License(s) and all of its Subsidiaries Intellectual Property and License(s), and shall actively pursue any infringement of any such Intellectual Property or License(s), in each case to the extent material to Borrower’s business.  The Borrower shall operate its business and the Subsidiaries business so as to not knowingly infringe any patent, trademark or copyright.

9.6

Further Assurances.  The Borrower shall take such further action and provide to Lender such further assurances as may be reasonably requested to ensure compliance with the intent of this Loan Agreement and the other Loan Documents.

9.7

Covenants Regarding the Collateral and Leased Premises.  The Borrower makes the following covenants with the Lender regarding the Collateral:

(a)

The Borrower will use the Collateral only in the ordinary course of its businesses, and will not permit the Collateral to be knowingly used in violation of any applicable law or policy of insurance; 

(b) 

The Borrower will defend the Collateral against all claims and demands of all Persons, except for Permitted Liens;

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(c)

The Borrower will, at Lender’s request, use reasonable efforts to obtain and deliver to Lender such waivers as Lender may require waiving a landlord's or subsequent lien holder’s enforcement rights against the Collateral; 

(d)

The Borrower will not sell, assign, lease, transfer, pledge, hypothecate or otherwise dispose of or encumber the Collateral or any interest therein, except in the ordinary course of the Borrower’s business, except as provided for herein; and

(e)

The Borrower shall use commercially reasonable efforts to cause the Borrower’s landlord to execute and deliver, within thirty (30) days after the date hereof, a subordination and non-disturbance agreement, which is reasonably acceptable to the Lender. 

9.8

Lease Agreements.  A list of all Leases is set forth in Exhibit 9.8. 

SECTION 10

NEGATIVE COVENANTS

10.1

Debt.  With the exception of Permitted Debt, the Borrower shall not incur, assume, create, and permit to exist or guarantee any non-trade Debt.  This Section 10.1 does not amend or modify the terms, conditions and agreements in Section 2.14 above.

10.2

Liens.  With the exception of Permitted Liens, the Borrower shall not create or permit any Liens on its property, assets, including without limitation the Collateral.  This Section 10.2 does not amend or modify the terms, conditions and agreements in Section 2.14 above.

10.3

Dividends and Redemptions.  With the exception of Permitted Distributions and Permitted Redemptions, the Borrower shall not (i) pay or declare any dividends, including without limitation stock dividends, or other distributions, (ii) purchase, repurchase, redeem or otherwise acquire any stock or other equity interests in itself or any third party, or (iii) pay or acquire any debt subordinate to the Indebtedness, unless specifically permitted by the Lender in writing.

10.4

Loans and Other Investments.  With the exception of Permitted Distributions, the Borrower shall not make or permit to exist any advances or loans to, or guarantee or become contingently liable, directly or indirectly, in connection with the obligations, leases, stock or dividends of, or own, purchase or make any commitment to purchase any stock, bonds, notes, debentures or other securities of, or any interest in, or make any capital contributions to (all of which are sometimes collectively referred to herein as “Investments”) any Person except for (i) deposits in the Lender, (ii) endorsement of negotiable instruments for collection in the ordinary course of business, (iii) advances to employees for business travel and other expenses incurred in the ordinary course of business, (iv) so long as no Event of Default shall have occurred and be continuing, cash advances to wholly owned Foreign Subsidiaries in an amount not to exceed the lesser of (A) cash received from such Foreign Subsidiaries during the previous twelve (12) months or (B) One Hundred Thousand Dollars ($100,000) during any twelve (12) month period.

10.5

Change in Business.  The Borrower shall not enter into any business that is substantially different from the business in which it is presently engaged.

10.6

Change in Ownership and Control of the Borrower.  The Borrower shall not issue or authorize any additional or new equity interests, stock, securities, rights or phantom stock, yet excluding issuance of warrants and options that will result in a Change in Control of the Borrower.  Equity interests in the Borrower, including without limitation all stock, equity interests, securities, rights, options, warrants and phantom stock, may be transferred or sold, so long as such transfer and/or sale does not or will not result in a Change in Control.  

10.7

No Change in Name, Offices; Removal of Collateral. Borrower shall not, unless it shall have given thirty (30) days’ advance written notice thereof to Lender, (i) change its name, (ii) change the location of its chief executive offices or other office where books or records are kept, or (iii) change its state of organization.  Other than in the ordinary course of business or as expressly provided for herein, the Borrower shall not move, remove, relocate or transfer the Collateral to any location not approved by the Lender, in writing. 

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10.8

No Sale, Leaseback.  The Borrower shall not enter into any sale-and-leaseback or similar transaction, unless approved by the Lender in writing.

10.9

Margin Stock.  The Borrower shall not use any proceeds of the Term Note or Revolving Note to purchase or carry any margin stock (within the meaning of Regulation U of the Board of Governors of Federal Reserve System) or extend credit to others for the purpose of purchasing or carrying any margin stock.

10.10

Subsidiaries.  The Borrower shall not create, acquire, form, merge with or dispose of any Subsidiary, other than inactive Subsidiaries listed on Exhibit 10.10, or permit any Subsidiary to issue capital stock, unless the Borrower (i) obtains the Lender’s written consent, and (ii) simultaneously upon the creation, acquisition, formation or merger of a new Domestic Subsidiary the Borrower shall pledge to the Lender one hundred percent (100%) of the Equity Interests owned by the Borrower in each new Subsidiary, or upon the creation, acquisition, formation or merger of a new Foreign Subsidiary the Borrower shall pledge to the Lender sixty-five percent (65%) of all Equity Interests in each new Foreign Subsidiary that is a direct Foreign Subsidiary of the Borrower, in each case by delivering original stock certificates (if any) representing such Equity Interests to PCC, for itself and as agent for PCCA, together with written stock powers related to such Equity Interests, which are reasonably acceptable to the Lender.

10.11

Trade or Fictitious Name.  The Borrower shall give the Lender sixty (60) days prior written notice of use of or any change of any new trade or fictitious name.  The use of any trade or fictitious name shall be in compliance in all material respects with all laws regarding the use of such names.

10.12

Liquidation, Mergers, Consolidations and Dispositions of Assets.  Except with the prior written approval of the Lender, the Borrower shall not dissolve, liquidate, or become a party to any merger or consolidation, or acquire by purchase, lease, sale or otherwise, all or a substantial part of the assets of any Person, or purchase, sell, transfer, lease or otherwise dispose of all or a substantial part of its property or assets, other than a purchase, sale, transfer, lease or other disposition made in the ordinary course of the Borrower’s business.  If any of the Borrower’s property or assets are sold, transferred, leased or otherwise disposed of outside the ordinary course of Borrower’s business, except as otherwise permitted herein, the proceeds of such disposition shall be transferred directly to the Lender, and shall be applied to the outstanding amounts due under the Loan Documents in accordance with this Loan Agreement.  If the Borrower receives proceeds from a sale, transfer, lease or other disposition, except as otherwise expressly provided herein, it shall hold them in trust for the Lender, and immediately turn such proceeds over to the Lender up to the amount of the Indebtedness.  Amounts received by the Lender in excess of the Indebtedness shall be promptly returned to the Borrower.  

10.13

Change of Fiscal Year or Accounting Methods.   The Borrower shall not change its year or accounting methods if it will have a Material Adverse Effect.

10.14

Subordination of Debt and Subordination Agreements.  All debts now or hereafter owed to any Person, other than capital leases, trade debt, Permitted Redemptions, and unsecured operating costs that are incurred in the ordinary course of business, shall be governed by a Subordination Agreement or subordination agreement reasonably approved by the Lender.

SECTION 11

FINANCIAL COVENANTS

Borrower covenants and agrees that from the date hereof and until payment in full of the Indebtedness and termination of all Loan Documents, including without limitation this Loan Agreement, the following financial covenants shall not be breached or violated.

11.1

Cash Collateral.  As of the last day of each month the Borrower shall own and possess no less than One Million Dollars ($1,000,000), of which no less than Seven Hundred and Fifty Thousand Dollars ($750,000) shall be held in the Deposit Account at First Republic Bank and subject to a DACA. At all other times the Borrower shall own and possess no less than Seven Hundred and Fifty Thousand Dollars ($750,000)   

11.2

Quick Ratio.  On the last day of Borrower’s third fiscal quarter in 2014, and on the last day of each fiscal quarter thereafter Borrower’s Quick Ratio shall be no less than 2.7:1.

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11.3

EBITDA.  In the Borrower’s third and fourth fiscal quarters in 2014 EBITDA losses shall be no greater than Two Hundred Thousand Dollars ($200,000) for each fiscal quarter.  In the Borrower’s first quarter in 2015, and for each fiscal quarter thereafter EBITDA must exceed One Hundred Thousand Dollars ($100,000).

 

11.4

Maximum Capital Expenditures.  At all times the total of Capital Expenditures plus Capitalized Software Development Costs shall not exceed One Hundred Thousand Dollars ($100,000) during each fiscal year, commencing with the 2014 fiscal year. 

11.5

Quarterly Compliance Certificates. Within forty-five (45) days after the last day of each fiscal quarter the Borrower shall deliver to the Lender a Covenant Compliance Certificate, and certify satisfaction of all covenants in this Section 11.  A form copy of the Covenant Compliance Certificate is attached hereto as Exhibit 11.6.

SECTION 12

EVENTS OF DEFAULT

Each of the following shall constitute an Event of Default under this Loan Agreement and the other Loan Documents:

12.1

Borrower's failure to pay any principal or interest, when due, under either Term Note, this Loan Agreement or any of the other Loan Documents; or

12.2

Borrower's breach of or failure to comply with any financial term, condition, agreement, obligation, representation, warranty and/or covenant under either Term Note, this Loan Agreement or any of the other Loan Documents, including without limitation the financial information and disclosures in Section 8 herein and the financial covenants in Section 11 herein; or

12.3

Borrower's breach of or failure to comply with any non-financial term, condition, agreement, obligation, representation, warranty and/or covenant under either Term Note, this Loan Agreement or any of the other Loan Documents, if such breach or failure is not cured within fifteen (15) days following such breach; or 

12.4

Any representation, warranty or certification made by Borrower in any Loan Document, herein or therein or in any letter, certificate, communication or report furnished in connection herewith or therewith, shall prove to have been untrue or incorrect in any material respect when made; or

12.5

Any other obligation now or hereafter owed by Borrower to the Lender shall be in default; or

12.6

The Personal Guarantor breaches or fails to comply with any term, condition, agreement, obligation, representation, warranty and/or covenant under the Personal Guaranty, beyond any applicable cure period; or

12.7

Borrower, any Subsidiary or Personal Guarantor shall be in default under any obligation for borrowed money in excess of fifty thousand dollars ($50,000) owed to any other party, beyond any applicable cure period, which default entitles the other party to accelerate any such obligations; or

12.8

Borrower, any Subsidiary or Personal Guarantor shall (a) voluntarily dissolve, liquidate or terminate operations or apply for or consent to the appointment of, or the taking of possession by a receiver, custodian, trustee or liquidator of such Person or of all or of a substantial part of its assets, (b) admit in writing its/his inability, or be generally unable, to pay its debts as they become due, (c) make a general assignment for the benefit of its/his creditors, (d) commence a voluntary case under the federal bankruptcy code (as now or hereafter in effect), (e) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, (f) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the bankruptcy code, or (g) take any corporate action for the purpose of effecting any of the actions referred to in this Section 12.8; or

12.9

An involuntary petition or complaint shall be filed against Borrower, any Subsidiary or Personal Guarantor seeking bankruptcy relief or reorganization or the appointment of a receiver, custodian, trustee, intervenor or liquidator, of all or substantially all of its/his respective assets, and such petition or complaint shall not have been dismissed within sixty (60) days of the filing thereof; or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving or ordering any of the foregoing actions; or

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12.10

Any loss, theft, damage or destruction of any of the Collateral, having an aggregate value of one hundred thousand dollars ($100,000) or more, which loss is not fully insured, less applicable deductibles; or

12.11

A final judgment in excess of fifty thousand dollars ($50,000) shall be rendered against the Borrower, any Subsidiary or the Personal Guarantor and such judgment shall remain undischarged, undismissed, not timely appealed and/or unstayed for more than forty-five (45) days (except judgments validly covered by insurance or surety bond with a deductible of not more than ten thousand dollars ($10,000)), or there shall occur any levy upon, or attachment, garnishment, replevin or other seizure of, any material portion of the Collateral, which is not bonded over, dismissed or released within thirty (30) days of such levy, attachment, garnishment, replevin or other seizure; or

12.12

Borrower or any Subsidiary shall cease to be managed by its present management or other senior management personnel which are reasonably satisfactory to the Lender; or 

12.13

Failure to pay all Indebtedness on or before the Maturity Date, unless extended in writing by the Lender; or

12.14

A default or event of default under any Subordination Agreement; or

12.15

Borrower takes or participates in any action that is prohibited under an Subordination Agreement, or Borrower makes any payment not permitted under this Loan Agreement, or any Subordination Agreement; or

12.16

Any event or circumstance that causes or will cause a Material Adverse Effect, or any event or circumstance that the Lender reasonably believes in good faith will cause a Material Adverse Effect during the proceeding six (6) months; or

12.17

Any of Borrower’s officers or directors, or the Personal Guarantor are convicted of or plead guilty to a felony under federal, state, municipal or foreign law; or

12.18

Entry of a court or administrative order that enjoins, restrains or in any way prevents Borrower or any Subsidiary from conducting their business, or materially interferes with the ownership, use, occupation or management of any of their assets; or

12.19

The Borrower shall fail to transfer to the Lender all Permitted Loan Documents, simultaneously with the making, grant or extension of a Permitted Loan.

SECTION 13

REMEDIES

13.1

Remedies.   If any Event of Default shall occur and be continuing, under either Term Note, this Loan Agreement or any other Loan Document, the Lender may without notice to the Borrower, at its option, take any or all of the following actions:

(a)

Accelerate any or all of Indebtedness and declare such Indebtedness to be immediately due and payable;

(b)

Bring suit against the Borrower, or the Personal Guarantor to collect the Indebtedness;

(c)

Exercise any remedy available to Lender hereunder or at law and take any action or exercise any remedy provided herein or in any other Loan Document or under applicable law; and

(d)

Enforce and foreclose the security interest on the Collateral, without first enforcing or foreclosing any other security interest, or enforcing any Loan Document.

13.2

Rights Under the Code. Without waiving any of its other rights hereunder or under any other Loan Document or applicable law, the Lender shall have all rights and remedies of a secured party under the Code (and the Uniform Commercial Code of any other applicable jurisdiction) and such other rights and remedies as may be available hereunder, under other applicable law or pursuant to contract.

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13.3

Preparation of Collateral. Following and during an Event of Default, if requested by the Lender, the Borrower will promptly (i) assemble any Collateral and make it available to the Lender at a place to be designated by the Lender, located within three hundred (300) miles of Boston, Massachusetts, and (ii) notify all obligors under all Permitted Loans to make all future payments directly to the Lender, in lieu of making payments to the Borrower. 

13.4

Notice.  The Borrower agrees that any notice by Lender of the sale or disposition of any of the Collateral, or any other intended action hereunder, whether required by applicable law, the Code or otherwise, shall constitute reasonable notice to the Borrower if the notice is mailed to the Borrower by regular or certified mail, postage prepaid, at least ten (10) days before the action to be taken.

13.5  

Receiver.  In addition to any other remedy available to it, the Lender have the absolute right, upon the occurrence and during the continuance of an Event of Default, to seek and obtain the appointment of a receiver to take possession of and operate and/or dispose of the assets of Borrower, including without limitation the Collateral, and any reasonable costs and expenses incurred by Lender in connection with such receivership shall bear interest at the Default Rate, and shall be secured by the Collateral.

13.6

Application of Proceeds.  After the occurrence and during a continuing Event of Default, the Borrower authorizes the Lender to collect and apply against the Indebtedness when due (i) any cash or deposit accounts in Lender’s possession, (ii) any tax refunds, and (iii) any insurance premiums or any insurance proceeds payable on account of the loss or damage to the Collateral, and irrevocably appoints Lender as its attorney-in-fact to endorse any check or draft or take other action necessary to obtain such funds.

13.7

Non-Exclusive Remedies.  No remedy shall be exclusive of other remedies or impair the right of the Lender to exercise any other remedies.

13.8  

Marshaling. The Borrower waives any and all rights they may have to require marshaling of its assets and/or the Lender’s claims against it.

SECTION 14

MISCELLANEOUS PROVISIONS

14.1

Continuing Obligation to Cooperate.  The Borrower agrees to execute and deliver to the Lender all such other and further instruments and documents and take or cause to be taken all such other and further action as the Lender may reasonably request in order to effect and confirm or vest more securely in the Lender all rights contemplated in this Loan Agreement, including without limitation the Lender’s rights under Section 2.14 herein.

14.2

Amendments.  This Loan Agreement may be amended only by an instrument in writing and duly signed by the Lender and the Borrower.  

14.3

Enforceability.  If any provisions of this Loan Agreement shall be held to be illegal or unenforceable, such illegality or unenforceability shall relate solely to such provision and shall not affect the remainder of this Loan Agreement.

14.4

Venue.  The Borrower and Lender agree that any action or proceeding to enforce or arising out of this Loan Agreement may be commenced in any federal or state court of the Commonwealth of Massachusetts sitting in the county of Suffolk.

14.5

Service of Process.  The Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and confers personal jurisdiction if served by registered or certified mail, or as otherwise provided by the laws of the Commonwealth of Massachusetts or the United States of America.

14.6

No Waiver, Remedies Cumulative.   No failure on the part of either Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.  All rights and remedies herein provided are cumulative and are in addition to any other remedies provided by law, any Loan Document or otherwise.

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14.7

Survival of Representations.   All representations, warranties and covenants made herein shall survive the making of the Loans hereunder and the delivery of the Loan Documents, and shall continue in full force and effect so long as any Indebtedness is outstanding, there exists any commitment by Lender to the Borrower, and until this Loan Agreement is formally terminated in writing.

14.8

Indemnity.   In addition to all other Indebtedness, the Borrower agrees to defend, protect, indemnify and hold harmless the Lender, and all of its respective Affiliates, Subsidiaries, officers, directors, employees, attorneys, accountants, consultants, agents and any controlling Persons (collectively the “Indemnified Parties”) from and against any and all losses, claims, damages, liabilities, obligations, penalties, fees, costs, expenses and settlement agreements, joint and several (including, without limitation, reasonable attorneys’ and paralegals’ fees, costs and expenses) incurred by any of the Indemnified Parties, whether prior to or from and after the date hereof, as a result of or arising from or relating to (i) the Commitment Letter, (ii) any due diligence effort (including, without limitation, public record search, recording fees, examinations and investigations of the properties of the Borrower, each Domestic Subsidiary, each Foreign Subsidiary, the Borrower’s operations, each Domestic Subsidiary’s operations, each Foreign Subsidiary’s operations and the Collateral), negotiation, preparation, execution and/or performance of any of the Loan Documents or of any document executed in connection with the transactions contemplated thereby and the perfection of the Lender’s Liens in the Collateral, maintenance of the Loan by the Lender, and any and all amendments, modifications, and supplements of any of the Loan Documents or restructuring of the Indebtedness, (iii) any suit, investigation, action or proceeding by any Person, whether threatened or initiated, asserting a claim for any legal or equitable remedy against any Person under any statute, regulation or common law principle, arising from or in connection with any of the Loan Documents and/or Lender’s furnishing of funds to the Borrower under this Loan Agreement, (iv) the Lender’s preservation, administration and enforcement of its rights under the Loan Documents and applicable law, including the reasonable fees of the outstanding Indebtedness as attorneys fees if collected by or through an attorney at law and disbursements of counsel for the Lender in connection therewith, whether suit be brought or not and whether incurred at trial or on appeal, and all costs of repossession, storage, disposition, protection and collection of Collateral, (v) periodic field exams, audits and appraisals performed by the Lender, as permitted herein; and/or (vi) any matter relating to the financing transactions contemplated by the Loan Documents or by any document executed in connection with the transactions contemplated thereby, other than for such loss, damage, liability, obligation, penalty, fee, cost or expense, any of which arise from an Indemnified Parties’ gross negligence or willful misconduct.  No Indemnified Party shall be liable for any direct or consequential damages that arise from or are related to the Commitment Letter, this Loan Agreement or any of the Loan Documents.  All obligations for indemnification hereunder for all of the foregoing losses, damages, liabilities, obligations, penalties, fees, costs and expenses shall be part of the Indebtedness, secured by the Collateral, and chargeable against the loan accounts of the Borrower.  The indemnity herein shall survive the termination of this Loan Agreement.

14.9

Tax Obligations.  If the Borrower should fail to pay any tax or other amount required by this Loan Agreement to be paid or which may be reasonably necessary to protect or preserve any Collateral, the Lender may make such payment and the amount thereof shall be payable on demand, shall bear interest at the Default Rate from the date of payment by the Lender until paid and shall be deemed to be Indebtedness entitled to the benefit and security of the Loan Documents.  The Borrower agrees to pay and save the Lender harmless against any liability for payment of any state documentary stamp taxes, intangible taxes or similar taxes (including interest or penalties, if any) which may now or hereafter be determined to be payable in respect to the execution, delivery or recording of any Loan Document or the making of any Loan, whether originally thought to be due or not.  The agreement herein shall survive the termination of this Loan Agreement.

14.10

Reinstatement.  Notwithstanding anything herein to the contrary, this Loan Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any amount received by the Lender in respect of the Indebtedness is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower, or upon the appointment of any receiver, assignee, intervener or conservator of, or trustee or similar official for, the Borrower or any substantial part of its properties, or otherwise, all as though such payments had not been made.

14.11

Notices.   Any notice or other communication hereunder, or under any Loan Document, to any party hereto or thereto shall be by hand delivery, overnight delivery, facsimile, telegram, telex or registered or certified mail and unless otherwise provided herein shall be deemed to have been given or made when delivered, telegraphed, telexed, faxed or three (3) Business Days after having been deposited in the mails, postage prepaid, addressed to the party at its address specified in Exhibit 14.11 (or at any other address that the party may hereafter specify to the other parties in writing).

17

14.12

Governing Law.   This Loan Agreement and all Loan Documents shall be deemed contracts made under the laws of the Commonwealth of Massachusetts, and shall be governed by and construed in accordance with the laws of said state (excluding its conflict of laws provisions if such provisions would require application of the laws of another jurisdiction).

14.13

Successors.   This Loan Agreement shall be binding upon and shall inure to the benefit of the Borrower and the Lender, and their respective successors and assigns.

14.14

Assignment.  The Borrower may not assign any of their rights, obligations, covenants, representations, warranties, duties or responsibilities hereunder and under the Loan Documents.  Any such assignment shall be void.  The Lender may assign all or part of its rights hereunder and under the Loan Documents, at any time.

14.15

Counterparts.   This Loan Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original and all of which when taken together shall constitute but one and the same instrument.

14.16

Exhibits.  The exhibits annexed hereto are the only exhibits to be annexed to this Loan Agreement, and the material contained therein shall be incorporated herein.

14.17

Captions.  The captions herein contained are inserted as a matter of convenience only and such captions do not form a part of this Loan Agreement and shall not be utilized in the construction hereof.

14.18

Powers.   All powers of attorney granted to the Lender are coupled with an interest and are irrevocable.

14.19

Approvals.   If this Loan Agreement calls for the approval or consent of the Lender, such approval or consent may be given or withheld in the discretion of the Lender unless otherwise specified herein.

14.20

No Punitive Damages.   Each party agrees that it shall not have a remedy of punitive or exemplary damages against the other and hereby waives any right or claim to punitive or exemplary damages it may have now or which may arise in the future in connection with any Dispute.

14.21

Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS LOAN AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 14.21. 

14.22

Participations.   Nothing in this Loan Agreement or any other Loan Document shall prohibit the Lender from pledging or assigning this Loan Agreement and the Lender’s rights under any of the other Loan Documents, including collateral therefore, to any Federal Reserve lender in accordance with applicable law.

14.23

The Borrower’s Officers and Agents.  Lender shall have the right to deal with any officer or other representative designated in writing by the Borrower with regard to all matters concerning the rights and obligations of Lender hereunder and pursuant to applicable law with regard to the transactions contemplated under the Loan Documents.  All actions or inactions of the officers, directors and/or agents of the Borrower with regard to the transactions contemplated under the Loan Documents shall be deemed with full authority and binding upon the Borrower hereunder.  The foregoing is a material inducement to the agreement of Lender to enter into the terms hereof and to consummate the transactions contemplated hereby. 

14.24

Fiduciary and Representative Capacities.  If a party hereto executes this Loan Agreement in a fiduciary or representative capacity, only the estate or entity represented shall be bound by this Loan Agreement, and the party executing this Loan Agreement, and the shareholders, officers, directors, employees and beneficiaries of such party shall not be personally liable for any obligation, express or implied, hereunder. 

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14.25

Waiver of Certain Defenses. All rights of the Lender and all obligations of the Borrower hereunder and under the Loan Documents shall be absolute and unconditional irrespective of (i) any change in the time, manner or place of payment of, or any other term of, all or any of the Indebtedness, or any other amendment or waiver of or any consent to any departure from any provision of the Loan Documents, (ii) any exchange, release or non-perfection of any other collateral given as security for the Indebtedness, or any release or amendment or waiver of or consent to departure from any guaranty for all or any of the Indebtedness, or (iii) any other circumstance which might otherwise constitute a defense available to, or a discharge of the Borrower, or any third party, other than payment and performance in full of the Indebtedness.

14.26

Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Loan Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Loan Agreement and (e) the word “asset” shall be construed to the have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

[Remainder of the page is blank.  Signatures are on the following page.]

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

THE BORROWER

SOFTECH, INC.

/s/ Joseph P. Mullaney

Joseph P. Mullaney

Its Chief Executive Officer

THE LENDER

PRIDES CROSSING CAPITAL FUNDING, L.P., as successor to PRIDES CROSSING CAPITAL, L.P. and PRIDES CROSSING CAPITAL-A, L.P.

          By PRIDES CROSSING CAPITAL GP, LLC

   Its General Partner

/s/ Peter M. Sherwood

Peter M. Sherwood 

Its Manager

 

[SofTech: Signature page to A/R Loan, Pledge and Security Agreement – December 2013]

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SCHEDULE OF EXHIBITS

Exhibit

         

Title

   

1.1

Definitions

4.3

Stock Power

6.1(d)

Previously Undisclosed Liability

6.1(g)

List of Litigation

6.1(n)

List of Judgment Liens

6.1(o)

List of Subsidiaries

8.2(a)

Covenant Compliance Certificate - Form

9.8

List of Leases

10.10

List of Inactive Subsidiaries

14.11

Notice Addresses

Definitions 1

List of Commercial Tort Claims

Definitions 2

List of Intellectual Property

Definitions 3

List of Permitted Debt

Definitions 4

List of Permitted Liens

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EXHIBIT 1.1

Definitions

“Accounts” means accounts as defined in the Code.

"Accounts Payable" means all accounts payable as defined under GAAP.

"Accounts Receivable" means accounts receivable as defined under GAAP.

"Accrued Expense" means an expense which has been incurred but for which no payment has been made. 

“Advance” means a payment and transfer of Principal from the Lender to the Borrower under a Term Note, in accordance with the terms, conditions and agreements of such Term Note and the Loan Agreement.

“Affiliate” of a Person means (a) any Person directly or indirectly owning ten percent (10%) or more of the voting stock or rights of such named Person or of which the named Person owns ten percent (10%) or more of such voting stock or rights; (b) any Person controlling, controlled by or under common control with such named Person; (c) any officer, director or employee of such named Person or any Affiliate of the named Person; and (d) any family member of the named Person or any Affiliate of such named Person.

“Borrower” means SofTech, Inc., a Massachusetts corporation with a place of business at 650 Suffolk Street, Suite 415, Lowell, Massachusetts 01854.

“Business Day” means any day that is not a Saturday, Sunday or other day on which the Lender are authorized or required by law to remain closed.

“Capital Expenditures” means capital expenditures as defined under GAAP, including without limitation capital leases.

“Capitalized Software Development Costs” means all capitalized costs and expenses incurred to write, develop, code, debug and commercialize software code and software, which are not expensed in the period they were incurred, but recognized over a period of time via depreciation or amortization.

"Cash" means cash as defined under GAAP.

“Change in Control” means either (a) any transaction or series of transactions that results in, or will lead to a change in the Borrower’s ownership such that owners of fifty and one tenth percent (50.10%) of the voting interests in the Borrower on a fully diluted basis before giving effect to such transaction or series of transactions will not own at least fifty and one tenth percent (50.10%) of the voting interests in the Borrower, on a fully diluted basis after giving effect to such transaction or series of transactions, (b) all or substantially all of  Borrower’s assets are sold or transferred, (c) any decrease after the Closing Date in the number of shares of Borrower’s Equity Interests owned by Guarantor on the Closing Date, (d) Guarantor becomes disabled or dies, (e) Guarantor ceases to be Borrower’s Chief Executive Officer, unless Guarantor is replaced by a Chief Executive Officer reasonably acceptable to the Lender within thirty (30) days, or (f) Borrower’s current senior management no longer manages, controls or operates Borrower’s business.

“Change in Law” means (a) the adoption of any law, rule or regulation after the Closing Date or (b) any change in any law, rule or regulation or in the interpretation or application thereof by any governmental authority after the Closing Date.

“Closing Date” means the date all Loan Documents are executed and delivered by the Borrower, The Lender, and Personal Guarantor, respectively.

“Code” means the Uniform Commercial Code, including all amendments, in effect in the Commonwealth of Massachusetts from time to time.

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“Collateral” means all assets of the Borrower, including without limitation the following property of the Borrower, wherever located and whether now owned by the Borrower or hereafter acquired (all terms shall have the meaning provided in the Code), (a) all accounts (which for avoidance of doubt shall exclude accounts of Borrower’s Subsidiaries), (b) all inventory, (c) all general intangibles, provided, however, the security interest in the Equity Interests owned by the Borrower in the Foreign Subsidiaries shall be limited as provided in Section 4.1 herein, (c) all chattel paper, (d) all instruments, (e) all payment intangibles, (f) all equipment, (g) all insurance and insurance proceeds, (h) all machinery, (i) all contracts, including all retainage under such contracts, (j) all contract rights, (k) all Intellectual Property, including without limitation all Source Code, (l) all chattel paper, (m) all electronic chattel paper, (n) all causes of action and Commercial Tort Claims, (o) all deposit accounts, including without limitation all Deposit Accounts, (p) all supporting obligations, (q) all funds on deposit with or under the control of Lender or its agents or correspondents, (r) all notes, documents, agreements and other writings that evidence a loan or other financial obligation owed to the Borrower, including without limitation each Permitted Loan, (s) all Pledged Subsidiary Equity, including without limitation all stock and stock certificates in each Domestic Subsidiary and sixty-five percent (65%) of all Equity Interests in each Foreign Subsidiary, (t) all parts, replacements, substitutions, profits, products and cash and non-cash proceeds of any of the foregoing (including insurance proceeds, of any kind, including those payable by reason of loss or damage thereto) in any form and wherever located, (u) all fixtures, (v) all vehicles, and (w) all written or electronically recorded books and records relating to any such Collateral and other rights relating thereto, wherever located and whether now owned by the Borrower or hereafter acquired.

“Commercial Tort Claim” means commercial tort claim as defined in Section 9-102 of the Code.  A complete list of the Borrower’s Commercial Tort Claims are set forth in Exhibit Definitions 1 to the Loan Agreement.

“DACA” means a Deposit Account Control Agreement.

“Debt” means all liabilities of a Person as determined under GAAP and all obligations which such Person has guaranteed or endorsed or is otherwise severally, secondarily or jointly liable for, and shall include, without limitation () all obligations for borrowed money or purchased assets, () obligations secured by assets whether or not any personal liability exists, () the capitalized amount of any capital or finance lease obligations, () the unfunded portion of pension or benefit plans or other similar liabilities, () obligations as a general partner, () contingent obligations pursuant to guaranties, endorsements, letters of credit and other secondary liabilities, and () obligations for deposits.

“Default” means any event or condition, or which upon notice, lapse of time or both would, unless cured or waived, is an Event of Default.

“Default Rate” means the per annum rate of five (5.00%) percent plus the rate of interest rate payable under the Term Note. 

“Deposit Account” means any and all of the bank accounts and deposit accounts maintained by the Borrower, including without limitation all checking accounts, savings accounts, and money market accounts maintained at First Republic Bank.  The term Deposit Account does not include any bank or deposit account which is used exclusively for (i) accepting and converting payments in foreign currencies, (ii) payroll, (iii) employee benefits or (iv) escrowed deposits.  

“Deposit Account Control Agreement” means one or more deposit account control agreements, entered into by and among the Borrower, the Lender, and a Person, pursuant to which the Lender perfects it’s security interest in a Deposit Account and all assets held, maintained and/or deposited into such Deposit Account.

"Domestic Subsidiary" means any existing and future corporation, limited liability corporation, limited liability partnership, partnership, trust or other entity in which the Borrower, directly or indirectly, owns more than fifty percent (50%) of the stock, capital, income interests, or other beneficial interests, or which is effectively controlled by the Borrower, and such entity is organized under the laws of one of the fifty United States, including without limitation Information Decisions, Inc. and Workgroup Technology Corp. 

"EBITDA" means earnings before interest, taxes, depreciation and amortization, as defined under GAAP.

23

“Environmental Laws” means, collectively the following acts and laws, as amended:  the Comprehensive Environmental Response, Compensation and Liability Act of 1980; the Superfund Amendments and Reauthorization Act of 1986; the Resource Conservation and Recovery Act; the Toxic Substances Act; the Clean Water Act; the Clean Air Act; the Oil Pollution and Hazardous Substances Control Act of 1978; and any other “Superfund” or “Superlien” law, and any other present or future federal, state or local law statute, ordinance, code, rule, regulation, order or decree relating to, or imposing liability or standards of conduct concerning, any pollutants, hazardous materials or waste, hazardous substances, toxic or dangerous waste, substance or material that may have a negative impact on human health, including without limitation, asbestos and asbestos containing materials, lead, radon, toxic mold, petroleum, petroleum products and radioactive materials, as now or at any time hereafter in effect.

“Equipment” means equipment as defined in the Code.

“Equity Interest” means any securities, interests, ownership rights, general partnership interests and/or rights, limited partnership interests and/or rights, limited liability company interests and/or rights, limited liability partnership interests and/or rights, rights to control and/or manage, instruments or distributions of any kind owned, issuable, issued by any Person, including, but not limited to, any such securities, interests and/or rights arising from a stock dividend, stock split, reclassification, reorganization, merger, consolidation, sale of assets or other exchange of securities or any dividends or other distributions of any kind upon or with respect to such securities, interests and/or rights.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to any Pension Plan, (b) the existence with respect to any Pension Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived, (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan, (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Pension Plan, (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Pension Plan or Pension Plans or to appoint a trustee to administer any Pension Plan or (f) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multi-employer Plan from the Borrower or any ERISA Affiliate of any notice of Withdrawal Liability or a determination that a Multi-employer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Event of Default” means any event specified as such in Section 12 hereof (“Events of Default”), provided that there shall have been satisfied any requirement in connection with such event for the giving of notice or the lapse of time, or both.

“First Republic Bank” means First Republic Bank, with a place of business at One Post Office Square, Boston, Massachusetts.

“Fixed Assets” means all tangible property owned and used in the production of Borrower’s revenue, that is not expected to be consumed or converted into Cash within the next twelve (12) months.

“Foreign Subsidiary” means any existing and future corporation, limited liability corporation, limited liability partnership, partnership, trust or other entity in which the Borrower, directly or indirectly, owns more than fifty percent (50%) of the stock, capital, income interests, or other beneficial interests, or which is effectively controlled by the Borrower, and such entity is organized and incorporated in a country other than the United States, including without limitation SofTech GmbH, and SofTech Srl. 

“GAAP” means generally accepted accounting principles as in effect in the Unites States from time to time.

"Greenleaf " means Greenleaf Capital, LLC, with a place of business at 100 W. Michigan Avenue, Suite 300, Kalamazoo, Michigan.

24

“Greenleaf Stock” means Two Hundred and Seventy-One Thousand Four Hundred and Eleven (271,411) shares of Borrower’s common stock, which as of May 31, 2013 were owned by Greenleaf or Persons affiliated with Greenleaf.

"Guarantor" means Joseph P. Mullaney, who resides at 9 Delaware Road, Medfield, Massachusetts.

“Indebtedness” means all obligations now or hereafter owed to the Lender by the Borrower, in connection with the Loan Agreement, Original Loan Agreement, Term Note I, Term Note II, Original Term Notes, Term Note, Personal Guaranty, any Subordination Agreement and all other Loan Documents, or arising out of the transactions described therein, including, without limitation sums advanced to pay overdrafts on any account maintained by the Borrower with the Lender, together with all interest accruing thereon, all obligations under any swap agreements as defined in 11 U.S.C. §101 between the Lender and the Borrower whenever executed, all interest, taxes, fees, all costs of collection, reasonable attorneys’ fees and expenses of or advances by either Lender which such Lender pays or incurs in discharge of obligations of the Borrower or to appraise, inspect, repossess, protect, preserve, store or dispose of any Collateral or the Leased Premises, whether such amounts are now due or hereafter become due, direct or indirect and whether such amounts due are from time to time reduced or entirely extinguished and thereafter re-incurred and any and all amounts covered by the indemnification provisions of Section 14.8, which are paid by an Indemnified Party.

“Insolvency Proceeding” means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Insolvent” means not Solvent.

“Instruments” means an instrument as defined in the Code.

“Intellectual Property” means all right, title, and interest in any of the following, whether now existing or hereafter acquired or created, (a) copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held (collectively, the "Copyrights"), including the Copyrights set forth in Exhibit Definitions 2 to the Loan Agreement, (b) trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks (collectively, the "Trademarks"), including the Trademarks described in Exhibit Definitions 2 to the Loan Agreement, (c) patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same (collectively, the "Patents"), including the Patents described in Exhibit Definitions 2 to the Loan Agreement, (d) mask work or similar rights available for the protection of semiconductor chips or other products (collectively, the "Mask Works"), (e) trade secrets, and any and all intellectual property rights in computer software and computer software products, (f) design rights, (g) claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above, (h) licenses or other rights to use any of the Copyrights, Patents, Trademarks, or Mask Works, and all license fees and royalties arising from such use to the extent permitted by such license or rights, (i) amendments, renewals and extensions of any of the Copyrights, Trademarks, Patents, or Mask Works, and (j) proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

"Interest" means Interest Expense.

“Interest Expense” means, for any period, all interest in respect of Debt accrued or capitalized during such period (whether or not actually paid during such period).

“Inventory” means inventory as defined in the Code.

“Investment Property” means the definition provided in Section 9-102 of the Code.

“IP Security Agreement” means that certain Intellectual Property Security Agreement, dated as of the date of the Loan Agreement, by and between the Borrower and the Lender.

25

“Iron Mountain” means Iron Mountain, Inc., and its subsidiaries and affiliates, with a place of business at 745 Atlantic Avenue, Boston, Massachusetts.

"Leases" means, for Borrower, all lease agreements with a third party for the lease and occupancy of real estate, buildings, common areas, office space, residential living space, fixtures and/or parking spaces, used by Borrower in the operation of its business.

“Lender” Prides Crossing Capital Funding, L.P., and it’s successors and assigns.

“Lien” means any consensual lien, non-consensual lien, mortgage, pledge, statutory lien or other lien arising by operation of law, grant, security interest, trust arrangement, security deed, financing lease, collateral assignment or other encumbrance, conditional sale or title retention agreement, or any other interest in property designed to secure the repayment of Indebtedness, whether arising by agreement or under any statute or law or otherwise.

“Loan Agreement” means that certain Amended and Restated Loan, Security and Pledge Agreement, dated December 5, 2013, by and between the Lender and Borrower.

 

“Loan Documents” means the Loan Agreement, Original Loan Agreement, Term Note I, Term Note II, Term Note, IP Security Agreement, Personal Guaranty, October Consent Letter, November Escrow Letter, all DACAs, all Subordination Agreements, Stock Powers, all UCC-1/Financing Statements, all UCC-3/Amendments, the Escrow Agreement, Source Code Escrow Agreement, Master Assignment Agreement, and all other documents, agreements, instruments and inter-creditor agreements now or hereafter evidencing, describing, relating to, guaranteeing or securing the Indebtedness, contemplated hereby or delivered in connection herewith, and all prior amendments and restates of any or all or the foregoing, as they may be modified from time to time.

“Machinery” means machinery as defined in the Code.

“Master Assignment Agreement” means that certain Master Assignment Agreement, dated December 5, 2013, by and between the Original Lenders and the Lender.

“Material Adverse Effect” means any (i) material adverse effect upon the validity, performance or enforceability of any of the Loan Documents or any of the transactions contemplated hereby or thereby, including without limitation the existence, priority or perfection of liens securing the Indebtedness, (ii) material adverse effect upon the properties, business, or condition (financial or otherwise) of the Borrower and/or any other Person obligated under any of the Loan Documents, which will or may reasonably likely cause the Borrower or other Person to Default under any of the Loan Documents, or (iii) material effect upon the ability of the Borrower, any Domestic Subsidiary or Personal Guarantor to fulfill any of their respective obligations under any of the Loan Documents.

"Maturity Date" means January 1, 2015.

“Mentor Contract” means that certain Asset Purchase Agreement, dated as of August 30, 2013, by and between the Borrower and Mentor Graphics Corporation. 

“Mullaney Loan” means the loan made by the Borrower to Joseph P. Mullaney in May, 1998, in the original principal amount of $134,000, which loan does not accrue interest and does not mature until stock issued by the Borrower which was purchased with the proceeds of such loan are sold.

"Net Income" means total revenue less all expenses during the same period, calculated in accordance with GAAP.

“November Escrow Letter” means that certain letter agreement, dated November 18, 2013, by and between the Original Lenders and the Borrower.

“October Consent Letter” means that certain letter agreement, dated October 17, 2013, by and between the Original Lenders and the Borrower.

“Original Lenders” means PCC and PCCA.

26

“Original Loan Agreement” means that certain Loan, Security and Pledge Agreement, dated May 10, 2013, by and between PCC and PCCA and Borrower.

“PCC” means Prides Crossing Capital, L.P., a Delaware limited partnership, with a place of business at 800 Boylston Street, Suite 2220, Boston, Massachusetts.

“PCCA” means Prides Crossing Capital-A, L.P., a Delaware limited partnership, with a place of business at 800 Boylston Street, Suite 2220, Boston, Massachusetts.

“Permitted Debt” means (a) the Indebtedness; (b) any other Debt listed on Exhibit Definitions 3; provided, however, that the principal amount of such Debt may not be increased from the amount shown as outstanding on such Exhibit Definitions 3, (c) Debt under any Permitted Revolving Facility, (d) Debt incurred for Capital Expenditures, including capital leases, secured only by the capital asset purchased with such Debt, not to exceed the amounts set forth in Section 11.5 of the Loan Agreement, (e) Debt incurred for Capitalized Software Development Costs, not to exceed the amounts set forth in Section 11.5 of the Loan Agreement, (f) trade payables incurred in the ordinary course of business that are not past due for more than ninety (90)  days other than as may be disputed in good faith or for which adequate reserves have been provided under GAAP, (g) Permitted Loans made to the Borrower, and (h) Debt owing under the Escrow Agreement.

“Permitted Distributions” means all Permitted Loans and all Permitted Equity Contributions.

“Permitted Equity Contribution” means a  transfer of value by the Borrower to a Domestic Subsidiary in any form, which constitutes a contribution of equity to such Domestic Subsidiary, and is not a loan to such Domestic Subsidiary.  The total of all Permitted Equity Contributions shall not exceed Fifty Thousand Dollars ($50,000).

“Permitted Liens” means:

(a)

Liens created under the Loan Documents;

(b)

Liens granted on specific assets purchased with Permitted Debt;

(c)

Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrower in accordance with GAAP;

(d)

purchase money security interests and liens evidencing capital leases, subject to the limitations set forth in “Permitted Debt”;

(e)

pledges or deposits under worker’s compensation, unemployment insurance and other social security legislation; 

(f)

deposits to secure the performance of bids, tenders, trade contracts (other than for borrowed money), leases (other than capital leases), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; 

(g)

Liens securing any Permitted Revolving Facility; 

(h)

Liens created under the Escrow Agreement; and 

(h)

liens, if any, listed in Exhibit Definitions 4 to the Loan Agreement.

“Permitted Loans” means (i) intercompany loans among the Borrower and its Domestic Subsidiaries, that are (a) evidenced  by a written, authorized, executed, delivered and enforceable promissory note, (b) owned by the Borrower, and (c) not subject to any claim, counterclaim, defense, set-off right, recoupment or other right, (ii) all notes or other written form of payment or promise to pay is immediately turned over to and held by the Lender, (iii) the Mullaney Loan and (iv) all loans listed in Exhibit Definitions 5 to the Loan Agreement.  The total of all Permitted Loans shall not exceed Fifty Thousand Dollars ($50,000) and the Mullaney Loan.  If some or all of the Mullaney Loan is paid, the amount paid shall not be added to the $50,000 limit herein to calculate the total of all Permitted Loans. 

27

“Permitted Redemptions” means (i) Borrower’s purchase of One Hundred and One Thousand Four Hundred and Eleven (101,411) shares of Greenleaf Stock on a future date chosen by Borrower, provided that (A) the Borrower shall have provided written notice to the Lender no less than five (5) Business Days prior to the proposed purchase of Borrower’s intent to purchase such Greenleaf Stock, (B) the Lender consents, in its sole discretion, in writing, and (C) on the date of such purchase (1) no Event of Default exists, (2) payment of the purchase price for such Greenleaf Stock will not result in an Event of Default and (3) payment of the purchase price of such Greenleaf Stock will not have a Material Adverse Effect, and (ii) an aggregate of Two Hundred and Ninety-Five Thousand Dollars ($295,000) in redemptions, fees and payments by the Borrower to Investors under the Securities Purchase Agreement, provided that (A) the Borrower shall have provided written notice to the Lender no less than ten (10) Business Days prior to the proposed payments, (B) the Lender consents, in writing, which written consent shall not be unreasonably withheld, conditioned or delayed if on the date of such purchase (1) no Event of Default exists, (2) such payment will not result in an Event of Default and (3) such payment will not have a Material Adverse Effect.

“Person” means any natural person, corporation, unincorporated organization, trust, joint-stock company, joint venture, association, company, limited or general partnership, any government or any agency or political subdivision of any government, or any other entity or organization, including without limitation the Borrower.

"Personal Guaranty" means that certain Personal Guaranty Agreement, dated as of the date of the Loan Agreement, by and between the Personal Guarantor and the Lender, and pursuant to which the Personal Guarantor unconditionally guarantees payment and performance of up to Five Hundred Thousand Dollars ($500,000) of the Indebtedness.  

“Pledged Subsidiary Equity” means, collectively, (i) one hundred percent (100%) of the Equity Interests owned by the Borrower in each Domestic Subsidiary, whether now owned or hereafter created or acquired by the Borrower, together will all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, and (ii) sixty-five percent (65%) of the Equity Interests owned by the Borrower in each Foreign Subsidiary, whether now owned or hereafter created or acquired by the Borrower, together with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing.

“Principal” means funds paid and transferred by the Lender to the Borrower under either Term Note I and Term Note II.

“Quick Ratio” means (a) Cash, plus Borrower’s Accounts Receivable, divided by (b) Borrower’s Accounts Payable, plus Borrower’s accrued expenses.  

“Regulated Materials” means any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to an Environmental Law.

“Securities” means the definition provided in Section 8-102 of the Code.

“Securities Purchase Agreement” means that certain Securities Purchase Agreement, entered into by the Borrower and certain investors (collectively the “Investors”) between November 2012 and February 2013, pursuant to which Borrower issued and sold 50,000 shares of new common stock to the Investors for Five Dollars ($5.00) per share. 

“Security Entitlement” shall have the meaning provided in Sec 8-102 of the Code.

“SofTech Stock” means any and all Equity Interests, Securities, options, warrants, rights to purchase an equity interest in the Borrower, which is owned by the Guarantor, owned by any Person controlled by the Guarantor or the disposition, transfer, sale or redemption of which is controlled by the Guarantor.

 

“Solvent” means, as to any Person including without limitation the Borrower, that such Person has capital sufficient to carry on its business and transactions in which it is currently engaged and all business and transactions in which it is about to engage, is able to pay its debts as they mature, and has assets having a fair valuation greater than its liabilities, at fair valuation.

28

“Source Code” means all source code, programming code, programing instructions, programing statements, programming text containing declarations, instructions, functions, loops, declarations, notes, scripts, files and other statements that tell a computer program how to function, which is created by Borrower, Borrower’s agents or employees, or owned by Borrower.

“Source Code Escrow Agreement” means any and all agreements by and between the Borrower, the Lender and Person, pursuant to which the Source Code is held in escrow as security collateral for all Indebtedness under the Loan Documents. 

"Subordination Agreement" means a subordination agreement, which is reasonably  acceptable to the Lender, by and between the Lender and a Person that loans funds to the Borrower under a Permitted Revolving Facility, as acknowledged by the Borrower, pursuant to which the Lender and such Person set forth (i) the allowance, priority and suspension of payments due Lender and such Person from the Borrower, and (ii) their respective collateral and enforcement rights in the Event of a Default under the Loan Documents or any of such Person’s loan documents.

“Subsidiaries” all of the Domestic Subsidiaries and Foreign Subsidiaries.

“Term Note” means that certain $1,000,000 Term Note, dated as of the date of the Loan Agreement, from the Borrower in favor of the Lender.

"Term Note I" means that certain $1,426,410 Term Note, dated as of the date of the Original Loan Agreement, from the Borrower in favor of PCC.

"Term Note II" means that certain $1,273,590 Term Note, dated as of the date of the Original Loan Agreement, from the Borrower in favor of PCCA.

“Termination Event” means a “reportable event” as defined in Section 4043(b) of ERISA, or the filing of a notice of intent to terminate under Section 4041 of ERISA.

Footnote 1.    All financial terms used herein shall have the meanings assigned to them under GAAP unless another meaning shall be specified.

Footnote 2.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Loan Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Loan Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

29

EXHIBIT 4.3

Stock Powers

[The remainder of the page is blank.  The Exhibit appears on the following page.]

30

 EXHIBIT 6.1(d)

Previously Undisclosed Liabilities

None.

[The remainder of the page is blank.]

31

EXHIBIT 6.1(g)

List of Litigation

On July 19, 2013, Dassault Systemes Solidworks Corporation (“Solidworks”) filed a complaint (the “Complaint”) against the Borrower in the United States District Court for the Eastern District of Texas, Tyler Division, alleging fraud and false assurances.  The Complaint is connected to a patent infringement suit brought by Auto-Dimensions LLC, a wholly-owned subsidiary of Acacia Research Group, against Solidworks in December 2012.  The Borrower owned those patents in question and sold them to Auto-Dimensions LLC in June 2012.  Solidworks is seeking reimbursement from the Borrower of attorneys’ fees and any judgments or settlement monies it may incur under the infringement suit, as well as punitive and multiple damages.  Trial is set for November 2015.

The Borrower has engaged Davis Malm & D’Agostine, P.C. in this matter, who has evaluated the case and believe that the Solidworks suit against the Borrower is without merit and was filed as a strategic move to put SofTech in conflict with Acacia. The addition of the Borrower to the case (i) affords Solidworks access to the Borrower’s documents and personnel for purposes of discovery and (ii) improved Solidworks’ argument to have the case moved from Texas to Massachusetts.

[The remainder of the page is blank.]

32

 EXHIBIT 6.1(n)

List of Judgment Liens

None.

[The remainder of the page is blank.]

33

EXHIBIT 6.1(o)

List of Subsidiaries

					
	Entity

	 
	State of

Incorporation

	 
	Corporate Relationship

	 
	 
	 
	 
	 

	SofTech, Inc.

	 
	Massachusetts

	 
	Parent Company

	 
	 
	 
	 
	 

	Workgroup Technology Corporation

	 
	Delaware

	 
	Wholly-owned subsidiary of SofTech

	 
	 
	 
	 
	 

	Information Decisions, Inc.

	 
	Michigan

	 
	Wholly-owned subsidiary of SofTech

	 
	 
	 
	 
	 

	SofTech, Srl

	 
	Italy

	 
	Wholly-owned subsidiary of SofTech

	 
	 
	 
	 
	 

	SofTech GmbH

	 
	Germany

	 
	Wholly-owned subsidiary of SofTech

[The remainder of the page is blank.]

34

 EXHIBIT 8.2(a)

Covenant Compliance Certificate

[The remainder of the page is blank.  The Exhibit starts on the following page.]

35

EXHIBIT 9.8

List of Leases

Lease Agreement between Borrower as tenant and Fortune Wakefield LLC as landlord for 9,141  square feet of office space located at 650 Suffolk Street, Lowell, Massachusetts 01854. The Lease terminates on December 31, 2018, if not extended at Borrower election. 

[The schedule appears on the following page. The remainder of the page is blank.]

36

EXHIBIT 10.10

List of Inactive Subsidiaries

[The schedule appears on the following page. The remainder of the page is blank.]

37

EXHIBIT 14.11

Notice Addresses

If to the Lender:

Peter M. Sherwood

Manager

Prides Crossing Capital Funding, L. P.

800 Boylston Street, Suite 2220

Boston, Massachusetts 02199

With a Copy to:

Sean W. Gilligan, Esq.

Gesmer Updegrove LLP

40 Broad Street

Boston, Massachusetts 02110

   

If to the Borrower: 

Joseph P. Mullaney

Chief Executive Officer

SofTech, Inc.

650 Suffolk Street, Suite 415

Lowell, Massachusetts 01854

with a copy to

Matthew V.P. McTygue, Esq.

Christine Dreyer McCay, Esq.

Edwards, Wildman & Palmer LLP

111 Huntington Avenue

Boston, Massachusetts 02199

38

EXHIBIT Definitions 1

List of Commercial Tort Claims

None.

[The remainder of the page is blank.]

39

EXHIBIT Definitions 2

List of Intellectual Property

US Trademarks Registrations

PRODUCTCENTER

Trademark No.

3,657,646

SOFTECH

Trademark No.

4,170,380

Canadian Trademark Registrations

SOFTECH

Trademark No. TMA 348907

[The schedule appears on the following page. The remainder of the page is blank.]

40

EXHIBIT Definitions 3

List of Permitted Debt

None.

[The remainder of the page is blank.]

41

EXHIBIT Definitions 4

List of Permitted Liens

None.

[The remainder of the page is blank.]

42

EXHIBIT Definitions 5

List of Permitted Loans

None.

[Remainder of the page is blank.]

43activecareexh101.htm

Exhibit 10.1

 

ASSET PURCHASE AGREEMENT

 

 

by and among

 

 

GWIRE CORPORATION

 

 

as the Purchaser,

 

 

RAPID MEDICAL RESPONSE, LLC,

 

 

ORBIT MEDICAL RESPONSE

 

 

and

 

 

GREEN WIRE, LLC

 

 

as the Sellers

 

 

Dated Effective as of September 1, 2012

 

  

  

  

 

ASSET PURCHASE AGREEMENT

 

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated effective as of September 1, 2012, is made and entered into by and among GWire Corporation, a Utah corporation (the “Purchaser”), ActiveCare, Inc., a Delaware corporation (“ActiveCare”), Rapid Medical Response, LLC, a Utah limited liability company (“Rapid”), Orbit Medical Response, LLC, a Utah limited liability company (“Orbit”), and Green Wire, LLC, a Utah limited liability company (“Green Wire” with each of Rapid, Orbit and Green Wire a “Seller”, and collectively, the “Sellers”). The Purchaser and the Sellers are sometimes individually referred to herein as a “Party” and collectively as the “Parties.”

 

A.           Sellers provide personal medical response products and services to consumers and operate a call center relating thereto (the “Business”) in the state of Utah.

 

B.           The Parties desire to enter into this Agreement pursuant to which the Sellers propose to sell to the Purchaser, and the Purchaser proposes to purchase from the Sellers, certain of the assets used or held for use by the Sellers in the conduct of the Business as a going concern, and the Purchaser proposes to assume certain of the liabilities and obligations of the Sellers (the “Acquisition”).

 

C.           The Parties desire to make certain representations, warranties and agreements in connection with the Acquisition.

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows:

 

 

ARTICLE I

DEFINITIONS

 

 

Section 1.1.                      Definitions.

 

The following Terms, as used herein, have the following meanings:

 

“Accounts Payable” means monies owed to vendors for goods and services received that are not yet paid.

 

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such other Person. For purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

“Business Day” means any day except Saturday, Sunday or any day on which banks are generally not open for business in the City of Salt Lake City, Utah.

 

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

 

“Employee Benefit Plan” means each plan, fund, program, agreement or arrangement (i) with respect to which the Sellers has any liability, whether actual or contingent, direct or indirect and (ii) which provide employee benefits or for the remuneration, direct or indirect, of employees, former employees, directors, officers, consultants, independent contractors, contingent workers or leased employees of the Sellers or any Person that together with the Sellers would be a single employer within the meaning of Section 414 of the Code (whether written or oral), including, without limitation, each “welfare” plan (within the meaning of Section 3(1) of ERISA) and each “pension” plan (within the meaning of Section 3(2) of ERISA).

 

  

1

  

 

“Computer Software” means all computer programs, materials, tapes, source and object code, and all prior and proposed versions, releases, modifications, updates, upgrades and enhancements thereto, as well as all documentation and listings related thereto used by the Sellers.

 

“Contract” means any written or oral contract, Permit, loan or credit agreement, note, bond, mortgage, indenture, lease, sublease, purchase order or other agreement, instrument, concession, franchise or license.

 

“Databases” means databases in all forms, versions and media, together with prior and proposed updates, modifications and enhancements thereto, as well as all documentation and listings therefor used by the Sellers.

 

“Effective Time” means 12:01 a.m. on September 1, 2012.

 

“Environmental Laws” means any federal, state, local or foreign law (including, without limitation, common law), treaty, judicial decision, regulation, rule, judgment, order, decree, injunction, permit or governmental restriction or any agreement with any Governmental Entity or other third party, whether now or hereafter in effect, relating to the environment, human health and safety or to pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials.

 

“Equity Interests” means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether voting or nonvoting) of capital stock, including each class of common stock and preferred stock of such Person, and (ii) with respect to any Person that is not a corporation, any and all general partnership interests, limited partnership interests, membership or limited liability company interests, beneficial interests or other equity interests of or in such Person (including any common, preferred or other interest in the capital or profits of such Person, and whether or not having voting or similar rights).

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Federal Health Care Program” shall have the meaning given in 42 U.S.C. § 1320a-7b(f), as amended.

 

“GAAP” means United States generally accepted accounting principles.

 

“Governmental Entity” means any federal, state or local or foreign government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (including, without limitation, regulatory authorities, carriers, intermediaries or other instrumentalities administering Federal Health Care Programs).

 

  

2

  

 

“Hazardous Materials” mean any waste, pollutant, contaminant, hazardous substance, toxic, ignitable, reactive or corrosive substance, hazardous waste, special waste, industrial substance, by-product, process intermediate product or waste, petroleum or petroleum-derived substance or waste, chemical liquids or solids, liquid or gaseous products or any constituent of any such substance or waste, the use, handling or disposal of which by the Sellers is in any way governed by or subject to any applicable Environmental Law.

 

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended, and any rules or regulations promulgated thereunder.

 

“Intellectual Property” means the tangible and intangible rights or interests and intellectual property rights evidenced by, embodied in, or associated with (A)  any patents, patent applications and inventions and discoveries that may be patentable, (B) any works of authorship or expression which includes but is not limited to Computer Software, Databases and business plans, whether or not copyrightable, including moral rights and copyrights recognized by law, together with any renewal or extension thereof, (C) any logos, trademarks, domain names, service marks, trade names and trade dress, and all goodwill relating thereto, (D) any trade secrets, technology licenses, confidential information, shop rights and other intellectual property rights owned or claimed and embodied therein, or associated therewith, or similar rights protectable under any laws or international conventions throughout the world, and (E) in each case of the foregoing items (A) through (D), the right to apply for registrations, certificates, or renewals with respect thereto and the right to prosecute, enforce, obtain damages relating to, settle or release any past, present, or future infringement thereof.

 

“Knowledge” shall mean, as follows:

 

(A)           an individual will be deemed to have “Knowledge” of a particular fact or other matter if:

 

(i)           such individual is actually aware of such fact or other matter; or

 

(ii)           a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter.

 

(B)           a Person (other than an individual) will be deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving as a director, officer, partner, member, manager, executor or trustee of such Person (or in any similar capacity) has, or at any time had, Knowledge of such fact or other matter.

 

“Law” means any law (both common and statutory law and civil and criminal law), treaty, convention, rule, directive, legislation, ordinance, regulatory code (including, without limitation, statutory instruments, guidance notes, circulars, directives, decisions, rules and regulations) or similar provision having the force of law or an Order of any Governmental Entity or any self regulatory organization.

 

“Liability” means any actual or potential liability or obligation (including as related to Taxes), whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted.

 

  

3

  

 

“Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, easement, reservation, cloud, servitude, right of way, option, right of first refusal, community property interest, equitable interest, restriction of any kind, conditional sale or other title retention agreement, any agreement to provide any of the foregoing and all other encumbrances, whether or not relating to the extension of credit or the borrowing of money, whether imposed Contract, Law, equity or otherwise, or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

 

“Material Adverse Effect” means any state of facts, change, event, effect or occurrence (whether or not constituting a breach of a representation, warranty or covenant set forth in this Agreement) that, individually or in the aggregate, is or may be reasonably likely to be materially adverse to the Sellers’ near-term or long-term projected business, financial condition, results of operations, properties, assets or Liabilities (including, without limitation, contingent Liabilities) or the Assets taken as a whole. A Material Adverse Effect shall also include any state of facts, change, event or occurrence that shall have occurred or been threatened that (when taken together with all other adverse state of facts, changes, events, effects or occurrences that have occurred or been threatened) is or would be reasonably likely to prevent or materially delay the performance by the Sellers of any of its obligations under this Agreement or the consummation of the transactions contemplated hereby.

 

“Medical Reimbursement Program” means all private and government reimbursement programs to which the Sellers participates, including, as applicable, health maintenance organizations, preferred provider organizations, other managed care plans, Medicare, Medicaid and all other programs that qualify as a Federal Health Care Program or State Health Care Program.

 

“Orders” means judgments, writs, decrees, compliance agreements, injunctions or judicial or administrative orders and legally binding determinations of any Governmental Entity or arbitrator.

 

“Permits” means all permits, licenses, authorizations, filings or registrations, franchises, approvals, certificates, exemptions, variances and similar rights obtained, or required to be obtained, from Governmental Entities.

 

“Permitted Liens” means (i) Liens for Taxes not yet due and payable, (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and repairmen incurred in the ordinary course of business consistent with past practice and not yet delinquent and (iii) zoning, building, or other restrictions, variances, covenants, rights of way, encumbrances, easements and other minor irregularities in title, none of which, individually or in the aggregate, (A) interfere in any material respect with the present use of or occupancy of such parcel by the Sellers, (B) have more than an immaterial effect on the value thereof or their use or (C) would impair the ability of such parcel to be sold for their present use.

 

  

4

  

 

“Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

 

“Pre-Closing Tax Period” means any Tax period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.

 

“Proceedings” means actions, suits, claims, litigations, reviews and investigations and legal, administrative or arbitration proceedings.

 

“Straddle Period” means any taxable period that includes (but does not end on) the Closing Date. For Taxes imposed on a periodic basis, the portion of such Taxes that is payable for the portion of such taxable period ending on the Closing Date shall be the amount of such Tax for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Tax for the preceding period) multiplied by a fraction, the numerator of which is the number of days in the portion of such taxable period ending on such Closing Date and the denominator of which is the number of days in the entire taxable period).

 

“Taxes” means all taxes, assessments, charges, duties, fees, levies or other governmental charges (including interest, penalties, additions to tax or additional amounts associated therewith), including income, franchise, capital stock, real property, personal property, tangible, withholding, employment, payroll, social security, social contribution, unemployment compensation, disability, transfer, sales, use, excise, gross receipts, value-added and all other taxes of any kind whatsoever (whether estimated or not) imposed by any Governmental Entity, whether disputed or not, imposed by any Governmental Entity.

 

“Tax Return” shall mean any report, return, declaration or other information required to be supplied to a Governmental Entity in connection with Taxes, including estimated returns, claims for refund and schedules and reports of every kind with respect to Taxes.

 

ARTICLE II

PURCHASE AND SALE

 

Section 2.1.                      Agreement to Purchase and Sell.

 

Subject to the terms and conditions of this Agreement, effective as of the Effective Time and except for the Excluded Assets, the Sellers will grant, sell, assign, transfer and deliver to the Purchaser, and the Purchaser will purchase and acquire from the Sellers, all right, title and interest of the Sellers in, to and under the assets, properties and business, of every kind and description, wherever located, real, personal or mixed, tangible or intangible, owned or held or used in the conduct of the Business by the Sellers as the same shall exist as of the Effective Time, and all of the assets of the Business thereafter acquired by the Sellers (which assets, properties and rights, other than the Excluded Assets, are collectively referred to in this Agreement as the “Assets”), free and clear of all Liens, other than Permitted Liens, and the Purchaser will assume the Assumed Liabilities (as hereinafter defined).

 

  

5

  

 

Section 2.2.                      Assets.

 

Except as otherwise expressly set forth in Section 2.3, the Assets shall include, without limitation, the following assets, properties and rights of the Sellers as of the Effective Time:

 

(a)           all cash, cash equivalents and marketable securities and all rights to any bank accounts of the Sellers, all deposits, advances and overpayments, including, without limitation, all customer deposits and overpayments relating to the period after the Effective Time or deposits and overpayments related to ongoing customer services deposited prior to the Effective Time and performed and earned after the Effective Time;

 

(b)           all furniture, fixtures, equipment and all other tangible assets and personal property;

 

(c)           all rights of the Sellers under those Contracts, to the extent transferable in accordance with applicable Law, set forth on Schedule 4.11 (unless indicated to the contrary thereon) or that are of the type that would have been listed thereon except that they involve payments in an amount less than the applicable amount set forth in Section 4.11 (collectively, the “Assumed Contracts”);

 

(d)           all Computer Software;

 

(e)           all goodwill, going concern value, patents, patent applications, patent rights, copyrights, copyright applications, URLs, domain names, methods, know-how, software, technical documentation, processes, procedures, inventions, trade secrets, trademarks, trade names, trade dress, logos, fictitious business names (d/b/as), telephone numbers, confidential information, franchises, customer lists, customer files, employee files, instructions, marketing materials, advertising records, service marks, service names, registered user names, technology, research records, data, designs, plans, drawings, manufacturing know-how and formulas, and other intellectual property, whether patentable or unpatentable, and other intellectual or proprietary rights or property of the Business (and all rights thereto and applications therefor), including, without limitation, the Intellectual Property;

 

(f)           all Leased Real Property and all licenses, permits, approvals, qualifications, easements and other rights relating thereto;

 

(g)           all rights in and under all express or implied guarantees, warranties, representations, covenants, indemnities and similar rights in favor of the Sellers;

 

(h)           all Permits, qualifications, product registrations, safety certifications, authorizations or similar rights to the extent that they are assignable, including those Permits set forth on Schedule 4.19;

 

(i)           all information, files, correspondence, records, data, plans, reports, Contracts and recorded knowledge (other than customer and employee files), including customer, supplier, price and mailing lists, and all accounting or other books and records of the Business in whatever media retained or stored, including, without limitation, computer programs and disks; and

 

  

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(j)           all issued and outstanding member interests of Discount Health Group LLC

 

(k)           all other tangible and intangible assets of any kind or description, wherever located, that are (i) carried on the books of the Business or (ii) owned by the Sellers and related to the Business.

 

Section 2.3.                      Excluded Assets.

 

Notwithstanding anything to the contrary set forth in this Agreement, the Assets will not include the following assets, properties and rights of or owned by the Sellers (collectively, the “Excluded Assets”):

 

(a)           any intercompany notes;

 

(b)           all ownership and other rights with respect to the Sellers’ Employee Benefit Plans;

 

(c)           any Permit, qualification, registration, certification, authorization or similar right that by its terms is not transferable to the Purchaser, including those indicated on Schedule 4.19 as not being transferable;

 

(d)           all rights to causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by the Sellers, whether arising by way of counterclaim or otherwise;

 

(e)           the charter documents of the Sellers, minute books, stock ledgers, Tax Returns, books of account and other constituent records relating to the organization of the Sellers;

 

(f)           tax refunds relating to periods prior the Effective Time;

 

(g)           deposits (other than those deposits related to the Assumed Contracts) except as otherwise provided in Section 2.2(a);

 

(h)           all pre-paid expenses and pre-paid insurance premiums;

 

(i)           all accounts receivable, notes receivable and other receivables and any security therefor (other than customer deposits and overpayments) except as otherwise provided in Section 2.2(a);

 

(j)           employee files, to the extent required by Law to be retained by the Sellers;

 

(k)           all rights of the Sellers under this Agreement all other agreements and documents contemplated hereby; and

 

(l)           those specific assets listed on Schedule 2.3.

 

Section 2.4.                      Assumed Liabilities.

 

(a)           ANYTHING CONTAINED HEREIN TO THE CONTRARY NOTWITHSTANDING, EXCEPT FOR THE ASSUMED LIABILITIES DESCRIBED IN SECTION 2.4(b), THE PURCHASER SHALL NOT AND THE PURCHASER DOES NOT ASSUME ANY LIABILITIES OF THE SELLERS WHETHER OR NOT ARISING OUT OF OR RELATING TO THE ASSETS OR THE BUSINESS OR ANY OTHER BUSINESS OF THE SELLERS, ALL OF WHICH LIABILITIES SHALL, AT AND AFTER THE EFFECTIVE TIME, REMAIN THE EXCLUSIVE RESPONSIBILITY OF THE SELLERS (AS APPLICABLE).

 

  

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(b)           As the sole exception to the provisions in Section 2.4(a), effective as of the Effective Time, the Purchaser will assume and agree to pay, discharge or perform, as appropriate, (i) all liabilities and obligations of the Sellers under the Assumed Contracts to the extent such obligations are not required to be performed prior to the Effective Time and accrue and relate to the operations of the Business subsequent to the Effective Time,(ii) all Liabilities that arise out of the ownership or operation of any of the Assets by the Purchaser after the Effective Time, (iii) the Accounts Payable of the Sellers that are set out on Schedule 2.4(b)(iii), and (iv) amounts advanced by Rob Gallup and Shawn Ross, two Affiliates of the Sellers, to cover operating expenses of Sellers following the Effective Time through the Closing, as set forth on Schedule 2.4(b)(iv), the final amount of which shall not exceed $______1 and shall be provided by the Sellers to the Purchaser at the Closing (collectively, the “Assumed Liabilities”).

 

Section 2.5.                      Excluded Liabilities.

 

Specifically, and without in any way limiting the Assumed Liabilities as set forth in Section 2.4, the Assumed Liabilities shall not include, and in no event shall the Purchaser assume, agree to pay, discharge or satisfy, or otherwise have any responsibility for, any Liability (together with all other Liabilities of the Sellers that are not Assumed Liabilities, the “Excluded Liabilities”):

 

(a)           for any accrued or unaccrued expenses related to the Sellers’ employees (or former employees), including, without limitation, payroll, payroll Taxes, business expenses, bonus, salary (including, without limitation, salary related to overtime and work-related travel), accrued vacations, fringe, pension or profit sharing benefits or severance pay, other than those expenses set forth on Schedule 2.4(b)(iv);

 

(b)           for Accounts Payable of the Sellers not identified on Schedule 2.4(b)(iii);

 

(c)           for any Taxes of the Sellers, any Affiliate of the Sellers or of any other Person imposed on the Sellers as a transferee or successor by Contract, Law or otherwise;

 

(d)           for any indebtedness with respect to borrowed money and notes payable, including any interest or penalties accrued thereon (collectively, the “Sellers’ Debt”);

 

(e)           relating to, resulting from or arising out of (i) claims made in pending or future Proceedings or (ii) claims based on violations of Law as in effect on or prior to the Closing, breach of contract, employment practices or environmental, health and safety matters or any other actual or alleged failure of the Sellers to perform any obligation, in each case arising out of or relating to events which shall have occurred, or services performed, or the operation of the Business prior to the Closing and which do not arise from services performed by Purchaser after the Closing or to Purchaser’s operation of the Business after the Closing;

 

(f)           pertaining to any Excluded Asset;

 

____________________

1 Amount and relevant schedule to be finalized in connection with the closing

 

  

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(g)           relating to, resulting from or arising out of any former operations of the Sellers that have been discontinued or disposed of prior to the Closing;

 

(h)           under or relating to any Employee Benefit Plan, if applicable, whether or not such Liability arises prior to or after the Closing Date;

 

(i)           of the Sellers arising or incurred in connection with the negotiation, preparation and execution of this Agreement and the transactions contemplated hereby and any fees and expenses of counsel, accountants, brokers, financial advisors or other experts of the Sellers; or

 

(j)           any Liabilities that are not Assumed Liabilities.

 

Such Excluded Liabilities shall include all Proceedings relating to any or all of the foregoing and all costs and expenses in connection therewith.

 

ARTICLE III

PURCHASE PRICE; ALLOCATIONS

 

Section 3.1.                      Purchase Price.

 

The aggregate amount to be paid for the Assets shall be up to Two Million Seven Hundred Forty Thousand One Hundred and Eighty-one Dollars $2,740,181 (the “Purchase Price”) consisting of (a) Purchaser’s promissory notes issued to the Sellers in such names and proportions determined in accordance with the allocation of the Purchase Price among the Sellers set forth in Schedule 3.3 in the aggregate amount of Two Million Six Hundred Ninety Thousand One Hundred and Eighty-one Dollars ($2,690,181) payable in thirty-six (36) monthly aggregate installments of Seventy-five Thousand Dollars ($75,000) with the first such payment due on the Closing Date (the “First Note Payment”), each in the form attached hereto as Exhibit A (the “Purchaser’s Promissory Notes”) and secured by the assets of the Purchaser as set forth in the Security Agreement in the form attached as Exhibit B (the “Security Agreement”) and guaranteed by ActiveCare pursuant to the Guaranty in the form attached as Exhibit C (the “Guaranty”), and (b) Twenty Thousand (20,000) shares (the “ActiveCare Shares”) of the Preferred Series D  Stock of ActiveCare having an aggregate value as of the date of this Agreement of Fifty Thousand Dollars ($50,000). Certificates representing the ActiveCare Shares shall be issued to the Sellers in such names and proportions as directed by Sellers on the Closing Date.  In addition to the foregoing payments, as consideration for the grant, sale, assignment, transfer and delivery of the Assets, the Purchaser shall assume and discharge fully the Assumed Liabilities as such Assumed Liabilities mature according to their terms.

 

Section 3.2.                      Payment of Purchase Price; Delivery of ActiveCare Shares.

 

On the Closing Date, (a) the Purchaser shall deliver executed Purchaser’s Promissory Notes to the Sellers, (b) the Purchaser shall deliver the executed Security Agreement to the Sellers, (c) ActiveCare shall deliver the executed Guaranty, (d) ActiveCare shall deliver stock certificates representing the ActiveCare Shares to the Sellers, (e) the Purchaser shall deliver the First Note Payment, less $13,154.99 (the “Estimated Philippines Bonus Reimbursement Amount”), which offset amount shall be allocated among the Sellers ratably in accordance with the allocation of the Purchase Price among the Sellers set forth on Schedule 3.3, and (f) the Purchaser shall deliver to Rob Gallup and Shawn Ross the amounts set forth on Schedule 2.4(b)(iv).

 

  

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Section 3.3.                      Allocation of Purchase Price.

 

The allocation of the Purchase Price (and all other capitalized costs) among the Sellers, and among the Assets and the non-competition covenants contained in Section 6.4 in accordance with Code Section 1060 and the U.S. Treasury regulations thereunder (and any similar provision of state, local or foreign Law, as appropriate), shall be as set forth on Schedule 3.3. The parties, except as required by applicable Law, shall report, act and file Tax Returns in all respects and for all purposes in a manner consistent with such allocation, and shall not take any position before any Governmental Entity that is in any way inconsistent with such allocation. The Sellers shall timely and properly prepare, execute, file and deliver all such documents, forms and other information as the Purchaser may reasonably request to prepare such allocation.

 

Section 3.4.                      Allocation of Certain Items.

 

With respect to certain expenses incurred with respect to the Assets in the operation of the Business, the following allocations will be made between the Purchaser and the Sellers:

 

(a)           Taxes. Real and ad valorem property Taxes (or any other Tax that is imposed on a periodic basis) will be apportioned at the Closing based upon the number of days in the taxable period before and after the Effective Time and the amounts set forth in the current Tax bills.

 

(b)           Utilities. Utilities, water and sewer charges will be apportioned based upon the number of Business Days occurring before and after the Effective Time during the billing period for each such charge.

 

(c)           Lease Payments. All lease payments under the Real Property Leases will be apportioned based upon the number of days occurring before and after the Effective Time during the rental period for each such payment.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY AND THE SELLERS

 

 

The Sellers, jointly and severally, represent and warrant to the Purchaser as follows:

 

Section 4.1.                      Organization; Ownership.

 

(a)           Organization.  Each Seller is a limited liability company duly formed and validly existing under the laws of Utah and has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted.  Each Seller is duly qualified or registered as a foreign entity to transact business under the laws of each jurisdiction where the character of its activities or the location of the properties owned or leased by it requires such qualification or registration.  Each Seller has heretofore made available to the Purchaser true, correct and complete copies of such Seller’s organizational documents as currently in effect and the Seller’s record books with respect to actions taken by such Seller’s members, managers or officers, as applicable. Schedule 4.1(a) contains a true and correct list of the only jurisdictions in which each Seller is qualified or registered to do business as a foreign corporation.  No Seller owns any Equity Interests in any Person.

 

  

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(b)           Ownership.  Exhibit D hereto contains a true and complete list of the Ownership Percentage of each Seller.  There has been no change in the ownership of the Sellers since January 1, 2012.

 

Section 4.2.                      Authorization.

 

Each Seller has full power and authority to execute and deliver this Agreement and any other certificate, agreement, document or other instrument to be executed and delivered by it in connection with the transactions contemplated by this Agreement (collectively, the “Sellers’ Ancillary Documents”) and to perform its obligations under this Agreement and such Seller’s Sellers’ Ancillary Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Sellers’ Ancillary Documents by the Sellers and the performance by the Sellers of their respective obligations hereunder and thereunder and the consummation of the transactions provided for herein and therein have been duly and validly authorized by all necessary corporate action on the part of each of the Sellers. The managers or the board of managers of each of the Sellers have approved the execution, delivery and performance of this Agreement and the Sellers’ Ancillary Documents and the consummation of the transactions contemplated by this Agreement and by the Sellers’ Ancillary Documents.  This Agreement and the Sellers’ Ancillary Documents have been duly executed and delivered by the Sellers and constitute the valid and binding agreements of the Sellers, enforceable against the Sellers in accordance with their respective terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.

 

Section 4.3.                      Absence of Restrictions and Conflicts.

 

The execution, delivery and performance of this Agreement and the Sellers’ Ancillary Documents, the consummation of the transactions contemplated by this Agreement and the Sellers’ Ancillary Documents and the fulfillment of and compliance with the terms and conditions of this Agreement and the Sellers’ Ancillary Documents do not or will not, as the case may be, with the passing of time or the giving of notice or both, violate or conflict with, constitute a breach of or default under, result in the loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to (i) any term or provision of the charter documents of the Sellers, (ii) to the Knowledge of the Sellers, except as indicated on Schedule 4.11, any Assumed Contract or any other Contract or other instrument applicable to the Sellers or the Business, (iii) any judgment, decree or order of any court or Governmental Entity or agency to which any of the Sellers is a party or by which the Business or any of the Assets are bound or (iv) to the Knowledge of the Sellers, except as set forth on Schedule 4.3, any Permit, Law or arbitration award of any Governmental Entity or public or regulatory unit, agency or authority applicable to the Sellers or the Business.

 

  

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Section 4.4.                      Real Property.

 

(a)           Schedule 4.4(a) sets forth a complete and accurate list and description of all of the owned real property of the Sellers (together with all fixtures and improvements thereon, the “Owned Real Property”) and all real property (together with all fixtures and improvements thereon, the “Leased Real Property”) in which any of the Sellers has a leasehold interest held under leases, subleases, licenses and/or other types of occupancy agreements (the “Real Property Leases”), including any requirement of consent of the lessor to consummate the transactions contemplated hereby.  The Owned Real Property and the Leased Real Property (together, the “Real Property”) constitute all real properties used or occupied by the Sellers in connection with the Business.

 

(b)           With respect to the Real Property, except as set forth on Schedule 4.4(a):

 

(i)           no portion thereof is subject to any pending condemnation or eminent domain Proceeding or other Proceeding by any public or quasi-public authority and, to the Knowledge of the Sellers, there is no threatened condemnation or eminent domain Proceeding or other Proceeding with respect thereto;

 

(ii)           the improvements on the Real Property are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purposes for which they are presently being used;

 

(iii)           with respect to the Leased Real Property, the respective Seller is the owner and holder of all of the leasehold estates purported to be granted by each applicable Real Property Lease, each Real Property Lease is in full force and effect and constitutes a valid and binding obligation of the Sellers enforceable in accordance with their respective terms and there does not exist under any such Real Property Lease any default or any event which with notice or lapse of time or both would constitute a default;

 

(iv)           there are no Contracts, written or oral, to which any of the Sellers is a party, granting to any other party the right of use or occupancy of any portion of the Real Property; and

 

(v)           there are no parties (other than the Sellers or their respective lessees disclosed pursuant to paragraph (iii) above) in possession of any portion of the Real Property.

 

Section 4.5.                      Title to Assets; Related Matters.

 

The Assets constitute all of the assets necessary and sufficient to conduct the operations of the Business in accordance with the Sellers’ past practices and as presently conducted by the Sellers. Except as set forth in Schedule 4.5, the Sellers have (and will convey to the Purchaser at the Closing) good and marketable title to the Assets, free and clear of all Liens other than Permitted Liens. To the Knowledge of the Sellers, all equipment and other items of tangible personal property and assets included in the Assets (a) are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, consistent with standards generally followed in the industry, (b) are usable in the regular and ordinary course of business and (c) conform to all applicable Laws, ordinances, codes, rules and regulations applicable thereto.  The Sellers have no Knowledge of any failure of any of the Assets to conform to all applicable Laws, ordinances, codes, rules and regulations applicable thereto, or of any defects or problems with any of the Assets, ordinary wear and tear excepted.  No Person other than the Sellers owns any equipment or other tangible personal property or assets situated on the premises of the Sellers which are necessary to the operation of the Business, except for the leased items that are subject to personal property leases. Since September 30, 2012 (the “Latest Balance Sheet Date”), the Sellers have not sold, transferred or disposed of any assets, except for the disposition of obsolete or useless assets and the consumption of assets in the ordinary course of business.  There are no developments affecting any of the Assets pending or, to the Knowledge of the Sellers, threatened, which might materially detract from the value, materially interfere with any present or intended use or adversely affect the marketability of such Assets.

 

  

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Section 4.6.                      Financial Statements.

 

Schedule 4.6 contains true, correct and complete copies of (a) the unaudited consolidated balance sheets of the Sellers as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity and cash flow for the fiscal years ended December 31, 2011 and 2010 (collectively, the “Sellers’ Annual Financial Statements”) and (b) an unaudited consolidated balance sheets of the Sellers as of September 30, 2012 and the related unaudited consolidated statements of income, changes in stockholders’ equity and cash flow for the nine (9) months then ended (the “Interim Balance Sheet”, and together with the Sellers’ Annual Financial Statements, the “Financial Statements”). The Financial Statements (i) have been prepared from the books and records of the Sellers, (ii) fairly present the consolidated financial position, results of operations and cash flows of the Sellers as of the dates and for the periods indicated, subject to typical year-end and/or audit adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (that, if presented, would not differ materially from those included in the Interim Balance Sheet) and (iii) have been prepared in accordance with GAAP applied on a consistent basis (except for the absence of footnotes, disclosures and typical year-end and/or audit adjustments, none of which, if reflected, would be material).

 

Section 4.7.                      No Undisclosed Liabilities.

 

Except as set forth on the Latest Balance Sheet, the Sellers have no Liabilities, except for (i) the Liabilities set forth on Schedule 4.7; (ii) Liabilities reflected or reserved against in the Financial Statements, (iii) Liabilities that have arisen since the Latest Balance Sheet Date in the ordinary course of business (provided that there is no such Liability that is material that relates to breach of Contract, breach of warranty, tort, infringement, violation of Law, Order or Permit, or any Proceeding, in each case as in effect on or before the Closing Date); and (iv) Liabilities disclosed in this Agreement or any Schedule to this Agreement.

 

Section 4.8.                      Absence of Certain Changes.

 

Since the Latest Balance Sheet Date and except as set forth in Schedule 4.8, there has not been (i) any event, occurrence, development or state of circumstances or facts which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect, (ii) any material damage, destruction, loss or casualty to property or assets of the Business, whether or not covered by insurance, (iii) any sale, transfer, license, pledge, mortgage or other disposal of tangible or intangible assets by the Sellers other than in the ordinary course of business, (iv) to the Knowledge of Sellers, any violation by the Sellers of any Laws, (v) any change in any of the accounting (and Tax accounting) policies, practices or procedures of the Sellers or (vi) any Contract for the Sellers to take any of the actions specified in this Section 4.8.

 

  

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Section 4.9.                      Legal Proceedings.

 

(a)           Except as set forth in Schedule 4.9(a), there are no Proceedings (or any basis therefor) pending or, to the Knowledge of the Sellers, threatened against, relating to or involving the operation of the Business, the Assets or the Assumed Liabilities. The Sellers have delivered or made available to the Purchaser true, correct and complete copies of all material documents and correspondence relating to such matters required to be referred to in Schedule 4.9(a).

 

(b)           Except as set forth in Schedule 4.9(b), there are no Proceedings that (i) resulted in any criminal sanctions or (ii) within the last three (3) years, resulted in any payments, in each case by or against the Sellers or any of its officers or directors in their capacity as officers or directors (whether as a result of a judgment, civil fine, settlement or otherwise).

 

Section 4.10.                      Compliance with Laws.

 

(a)           To the Knowledge of Sellers, each Seller is (and has been at all times during the past five (5) years) in compliance with all Laws and Orders applicable to the Assets or the conduct of the Business. Except as set forth in Schedule 4.10(a), with respect to the Business, the Assets or the Assumed Liabilities, (i) such Seller has not been charged and is not now under investigation with respect to, a violation of any applicable Law or Order, (ii) the Seller is not a party to or bound by any Order of any Governmental Entity and (iii) the Seller has filed all reports required to be filed with any Governmental Entity on or before the date hereof and all such reports are accurate and complete in all material respects and in material compliance with all applicable Laws.

 

(b)           Except as set forth on Schedule 4.10(b), during the past five (5) years, the Sellers have filed all claims or other reports required to be filed in order to receive reimbursement with respect to the provision of services, products and supplies covered under any Medical Reimbursement Program, in accordance with all Laws and requirements applicable to the Medical Reimbursement Programs, each as in effect on or before the Closing Date. The Sellers have no Knowledge of any unresolved material overpayment, false or improper claims, civil money penalties, or any material offsets or recoupments against future reimbursement, nor is there any reasonable basis for the delivery of any notice thereof.  Except as set forth on Schedule 4.10(b), there are no pending appeals, adjustments, challenges, audits, litigation, or notices of intent to reopen or open cost reports or claims, in connection with the operation of the Business with respect to any Medical Reimbursement Program.

 

(c)           Except as set forth on Schedule 4.10(c), no Seller (i) has been charged with or convicted of any criminal offense relating to the delivery of an item or service under Medicare, Medicaid or any other Federal Health Care Program or State Health Care Program, or relating to the unlawful distribution, prescription, dispensing or delivery of a controlled substance; (ii) has been debarred, excluded or suspended from participation in Medicare, Medicaid or any other Federal State Health Care Program or State Health Care Program; (iii) has had a civil monetary penalty assessed against such Person under Section 1128A of the Social Security Act; (iv) is currently listed on the General Services Administration published list of parties excluded from federal procurement programs and non-procurement programs; and (v) to the Knowledge of the Sellers is the target or subject of any current or potential investigation relating to any Medicare, Medicaid or any other Federal Health Care Program or State Health Care Program related offense.

 

  

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(d)           Except as disclosed on Schedule 4.10(d), neither the Sellers nor any of their respective managers, officers, or to the Knowledge of the Sellers, employees has engaged in any activities which are in violation of the federal or state Medicare and Medicaid statutes, Sections 1128, 1128A, 1128B, 1128C or 1877 of the Social Security Act (42 U.S.C. §§ 1320a-7, 1320a7a, 1320a-7b, 1320a-7c and 1395nn), the federal TRICARE statute (10 U.S.C. § 1071 et seq.), the False Claims Act (31 U.S.C. § 3729 et seq.), the False Statements Accountability Act (18 U.S.C. § 1001), the Program Fraud Civil Remedies Act (31 U.S.C. § 3801 et seq.), the anti-fraud and related provisions of HIPAA (e.g., 18 U.S.C. §§ 1035 and 1347), Federal Communications Commission regulations, or related regulations or other federal or state laws and regulations in effect on or before the Closing Date, including, without limitation, the following:

 

(i)           knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment;

 

(ii)           knowingly and willfully making or causing to be made a false statement or representation of a material fact for use in determining rights to any benefit or payment;

 

(iii)           failure to disclose knowledge by a Medicare or Medicaid claimant or a claimant under any Medical Reimbursement Program of the occurrence of any event affecting the initial or continued right to any benefit or payment on its own behalf or on behalf of another, with intent to fraudulently secure such benefit or payment;

 

(iv)           knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or kind (A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part by any Federal Health Care Program; or (B) in return for purchasing, leasing, or ordering, or arranging, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part by any Federal Health Care Program; or

 

(v)           any other activity which violates any state or federal Law in effect on or before the Closing Date relating to prohibiting fraudulent, abusive or unlawful practices connected in any way with the provision of health care items or services or the billing for such items or services provided to a beneficiary of any Medical Reimbursement Program.

 

  

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(e)           Except as set forth in Schedule 4.10(e), to the Knowledge of the Sellers, the business and operations of the Sellers have been and are in material compliance with all applicable Laws in effect on or before the Closing Date and relating to customer or individual healthcare information, including the Administrative Simplification requirements of HIPAA, as amended.

 

(f)           Except as set forth in Schedule 4.10(f), the Sellers have made available to the Purchaser copies of all reports of audits, surveys or inspections by or on behalf of any Governmental Entity or accrediting agency to the extent such reports reflect any material adverse findings, deficiencies or other failure to meet any applicable Laws or accreditation standards in effect on or before the Closing Date, as applicable.

 

(g)           Attached hereto as Schedule 4.10(g) is a list as of the date of this Agreement of the Sellers’ location, provider type, Licenses, certifications (including Certificates of Need), accreditations, tax identification number, Medicare and Medicaid provider number(s) and any additional provider and/or billing numbers, owner, and owner’s taxpayer status (taxable or tax-exempt) which list is true and correct in all material respects.

 

Section 4.11.                      Sellers’ Contracts.

 

(a)           Schedule 4.11 sets forth a true, correct and complete list of the following Contracts related to the Business to which any Seller is a party:

 

(i)           all bonds, debentures, notes, loans, credit or loan agreements or loan commitments, mortgages, indentures, guarantees or other contracts relating to the borrowing of money or binding upon any of the Assets;

 

(ii)           all Contracts with Governmental Entities;

 

(iii)           all Contracts for monitoring services, each of which may be canceled by Sellers or their respective successors and assigns without penalty upon giving no more than thirty (30) days’ notice or at least thirty (30) days’ notice prior to the next anniversary of the term of the applicable agreement;

 

(iv)           all Real Property Leases or other leases or licenses involving any properties or assets (whether real, personal or mixed, tangible or intangible) involving an annual commitment or payment of more than $10,000 individually by the Sellers;

 

(v)           all Contracts which limit or restrict the Sellers or any of its officers or key employees from engaging in any business in any jurisdiction;

 

(vi)           all franchising and licensing agreements;

 

(vii)           all employment agreements;

 

(viii)           a list of all customers and all customer relationships, which Sellers represent to number not fewer than 3,000 in number as of the Effective Date;

 

  

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(ix)           any Contract for capital expenditures or the acquisition or construction of fixed assets requiring the payment by the Sellers of an amount in excess of $10,000 per year;

 

(x)           any Contract that provides for an increased payment or benefit, or accelerated vesting, upon the execution of this Agreement or in connection with the transactions contemplated hereby;

 

(xi)           any Contract granting any Person a Lien on all or any part of any of the Assets;

 

(xii)           any Contract for the cleanup, abatement or other actions in connection with any Hazardous Materials, the remediation of any existing environmental condition or relating to the performance of any environmental audit or study;

 

(xiii)           any Contract granting to any Person an option or a first refusal, first-offer or similar preferential right to purchase or acquire any assets;

 

(xiv)           any Contract with any agent, distributor or representative that is not terminable without penalty on thirty (30) calendar days’ or less notice;

 

(xv)           any Contract for the granting or receiving of a license or sublicense or under which any Person is obligated to pay or have the right to receive a royalty, license fee or similar payment;

 

(xvi)           any Contract providing for the indemnification or holding harmless of any officer, member, manager, employee or other Person;

 

(xvii)           any joint venture or partnership Contract;

 

(xviii)           any customer Contract for the provision of goods or services by the Sellers;

 

(xix)           any outstanding power of attorney empowering any Person to act on behalf of the Sellers; and

 

(xx)           all existing Contracts and commitments (other than those described in subparagraphs (i) through (xviii) of this Section 4.11) to which any Seller is a party or by which any of the Assets are bound involving an annual commitment or annual payment to or from any Sellers of at least $10,000.

 

(b)           True, correct and complete copies of all Assumed Contracts have been made available to the Purchaser.  All of the Contracts identified on Schedule 4.11 shall be Assumed Contracts unless otherwise indicated on Schedule 4.11.

 

(c)           The Assumed Contracts are legal, valid, binding and enforceable in accordance with their respective terms with respect to the Sellers and with respect to each other party to such Assumed Contracts, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.  There are no existing defaults or breaches of the Sellers under any Assumed Contract (or events or conditions which, with notice or lapse of time or both would constitute a default or breach) and, to the Sellers’ Knowledge, there are no such defaults (or events or conditions which, with notice or lapse of time or both, would constitute a default or breach) with respect to any third party to any Assumed Contract.  The Sellers have no Knowledge of any pending or threatened bankruptcy, insolvency or similar proceeding with respect to any party to such agreements. The Sellers are not participating in any discussions or negotiations regarding modification of or amendment to any Assumed Contract or entry in any new material Contract applicable to the Business or the Assets. Schedule 4.11 identifies each Assumed Contract set forth therein that requires the consent of or notice to the other party thereto to avoid any breach, default or violation of such contract, agreement or other instrument in connection with the transactions contemplated hereby, including the assignment of such Assumed Contract to the Purchaser.

 

  

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Section 4.12.                      Insurance Policies.

 

(a)           The Sellers maintain insurance with reputable insurers for the Business and Assets against those risks and in such amounts as required by the State of Utah, or any other jurisdiction in which Sellers or any of them may conduct business, as applicable, as set forth on Schedule 4.12, and. to the Knowledge of the Sellers, Green Wire Outsourcing, Inc., a Philippines company (“Green Wire Outsourcing”), maintains insurance with reputable insurers for its business against those risks and in such amounts as required by the Philippines.  All insurance policies and bonds with respect to the Business and Assets are in full force and effect, and the Sellers have not reached or exceeded policy limits for any insurance policies in effect at any time during the past five (5) years. There is no claim by the Sellers pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. All premiums payable under all such policies and bonds have been timely paid, and the Sellers have otherwise complied fully with the terms and conditions of all such policies and bonds. The Sellers have no Knowledge of any threatened termination of, premium increase with respect to, or material alteration of coverage under, any of such policies or bonds.

 

Section 4.13.                      Environmental, Health and Safety Matters.

 

Except as set forth in Schedule 4.13, with respect to the Business, the Real Property and the Assets:

 

(a) the Sellers possess all Permits and have filed, all notices that are required under Environmental Laws, and the Sellers, to the Sellers’ Knowledge, are in full compliance with all Permits and all applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those Laws or contained in any Law issued, entered, promulgated or approved thereunder;

 

(b)           there are no Liabilities arising in connection with or in any way relating to the Assets, the Business or the Real Property of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, arising under or relating to any Environmental Law, and there are no facts, events, conditions, situations or set of circumstances which could reasonably be expected to result in or be the basis for any such Liability;

 

  

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(c)           no notice, notification, demand, request for information, citation, summons or Order has been received, no complaint has been filed, no penalty has been assessed and no investigation, action, claim, suite, proceeding or review is pending or, to the Knowledge of the Sellers, threatened by any Governmental Entity or other Person with respect to any matters relating to the Sellers and relating to or arising out of any Environmental Law;

 

(d)           the Sellers are not subject to any Liability incurred or imposed or based upon any provision of any Environmental Law or arising out of any act or omission of any of the Sellers, or the Sellers’ employees, agents or representatives or arising out of the ownership, use, control or operation by the Sellers of any plant, facility, site, area or property (including, without limitation, any plant, facility, site, area or property currently or previously owned or leased by the Sellers) from which any Hazardous Materials were released into the environment (the term “release” meaning any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment, and the term “environment” meaning any surface or ground water, drinking water supply, soil, surface or subsurface strata or medium, or the ambient air);

 

(e)           the Sellers have not imported, manufactured, stored, used, operated, transported, treated or disposed of any Hazardous Materials other than in compliance with all Environmental Laws and no Hazardous Material has been discharged, disposed of, dumped, injected, pumped, deposited, spilled, leaked, emitted or released at, on or under any Real Property or any other property now or previously owned, leased or operated by the Sellers; and

 

Section 4.14.                      Intellectual Property.

 

Schedule 4.14 sets forth a true and correct list of all Intellectual Property used in the Business or related to the Assets or Assumed Liabilities and the jurisdictions where each is registered (if any). The Sellers have good and marketable title to or possesses adequate licenses or other valid rights to use such Intellectual Property, free and clear of all Liens, and has paid all maintenance fees, renewals or expenses related to such Intellectual Property.  To the Knowledge of the Sellers, neither the use of such Intellectual Property nor the conduct of the Business in accordance with the Sellers’ past practices misappropriates, infringes upon or conflicts with any Intellectual Property rights of any third party.  No party has filed a claim or, to the Knowledge of the Sellers, threatened to file a claim against the Sellers alleging that the Sellers have violated, infringed on or otherwise improperly used the Intellectual Property rights of such party.

 

Section 4.15.                      Transactions with Affiliates.

 

Except as set forth in Schedule 4.15, no officer, member or manager of any Seller, or any Person with whom any such officer, member or manager has any direct or indirect relation by blood, marriage or adoption, or any entity in which any such Person, owns any beneficial interest (other than a publicly held corporation whose stock is traded on a national securities exchange or in the over-the-counter market and less than five percent (5%) of the stock of which is beneficially owned by all such Persons in the aggregate) or any Affiliate of any of the foregoing or any current or former Affiliate of the Sellers have any interest in: (a) any Contract, arrangement or understanding with, or relating to, the Business, the Assets or the Assumed Liabilities; (b) any loan, arrangement, understanding, or Contract for or relating to the Business, the Assets or the Assumed Liabilities; or (c) any property (real, personal or mixed), tangible or intangible, used or currently intended to be used by the Sellers relating to the Business, the Assets or the Assumed Liabilities. Schedule 4.15 also sets forth a complete list of all accounts receivable, notes receivable and other receivables and accounts payable owed to or due from any Affiliate to the Sellers relating to the Business, the Assets or the Assumed Liabilities.

 

  

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Section 4.16.                      Undisclosed Payments.

 

Neither the Sellers nor the officers, directors, members or managers of the Sellers, nor, to the Sellers’ Knowledge, anyone acting on behalf of any of them, has made or received payments not correctly categorized and fully disclosed in the Sellers’ books and records in connection with or in any way relating to or affecting the Business, the Assets or the Assumed Liabilities.

 

Section 4.17.                      Payor Relations.

 

Schedule 4.17 contains a true and complete list of the name and address of those payors of the Sellers that, on a consolidated basis, constitute ten percent (10%) or more of the Sellers’ gross revenue (including, without limitation, private insurers, hospitals, clinics, agencies, Medicare and Medicaid), together with the amounts paid and the percentage of gross revenue attributable to each such payor during the periods covered by the Financial Statements, and since the Latest Balance Sheet Date no such payor has terminated its relationship with or adversely curtailed its payments to the Sellers or indicated to the Sellers (for any reason) its intention to so terminate its relationship or curtail its payments.

 

Section 4.18.                      Employee Matters.

 

(a)           Except as set forth in Schedule 4.18(a), there are no Sellers Employee Benefit Plans.

 

(b)           The Sellers have provided to the Purchaser a true and complete list of all of the employees and independent contractors of the Business as of the date of this Agreement, specifying the annual salary, hourly wages, or independent contractor fees and position for such employee or independent contractor (the “Employee List”).  The Sellers have not received a claim from any Governmental Entity that the Sellers improperly classified as an independent contractor any person named on the Employee List. The Sellers have not made any written or oral commitment to any employee or independent contractor with respect to compensation, promotion, retention, termination, severance or similar matters in connection with the transactions contemplated by this Agreement.

 

(c)           Except as set forth on Schedule 4.18(c), (i) none of the Sellers is delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them to date or amounts required to be reimbursed to such employees, and (ii) to the Knowledge of the Sellers, each of the Sellers is in compliance in all material respects with all Laws respecting labor, employment and employment practices, terms and conditions of employment and wages and hours.

 

  

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(d)           The employees of the Business have not been, and currently are not, represented by any labor organization or group whatsoever.  The Sellers have not been and are not a signatory to any collective bargaining agreement, and no union organizing campaign or other attempt to organize or establish a labor union, employee organization or labor organization involving or representing employees of the Sellers has occurred, is in progress or is threatened.

 

(e)           Except as set forth on Schedule 4.18(e), no workers’ compensation or retaliation claim, complaint, charge or investigation has been filed or is pending against the Sellers which is not currently being handled by the Sellers’ insurance carrier(s), and the Sellers have maintained and currently maintain adequate insurance as required by applicable Law with respect to workers’ compensation claims and unemployment benefits claims.

 

(f)           To the Knowledge of the Sellers, each of the Sellers is in compliance with all applicable Laws and Orders and all Contracts or collective bargaining agreements governing or concerning labor relations, unions and collective bargaining, conditions of employment, employment discrimination and harassment, wages, hours or occupations safety and health, including, without limitation, ERISA, the Immigration Reform and Control Act of 1986, the National Labor Relations Act, the Civil Rights Acts of 1866 and 1964, the Equal Pay Act, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Occupational Safety and Health Act, the Davis Bacon Act, the Walsh-Healey Act, the service Contract Act, Executive Order 11246, the Fair Labor Standards Act and the Rehabilitation Act of 1973 and all applicable regulations under such acts, as well as the counterparts of such acts and laws in any foreign jurisdiction in which Sellers, or any of them, conduct business.

 

Section 4.19.                      Permits.

 

Except as set forth on Schedule 4.19, each Seller has all Permits necessary for its operations in the conduct of the Business, such Permits are in full force and effect and no violations are or have been recorded in respect of any thereof, and no Proceeding is pending or to the Knowledge of the Sellers threatened to revoke or limit any thereof.  Each Seller has taken all action reasonably necessary to maintain each Permit.  Schedule 4.19 contains a true, correct and complete list of all such Permits under which each of the Sellers is operating or bound, and the Sellers have furnished or made available to the Purchaser true, correct and complete copies of the Permits set forth on Schedule 4.19. To the Knowledge of the Sellers there is no proposed change in any applicable Law which would require the Sellers to obtain any Permits not set forth on Schedule 4.19 in order to conduct the Business as presently conducted. Except as set forth on Schedule 4.19, none of the Permits set forth on Schedule 4.19 shall be adversely affected as a result of any Seller’s execution and delivery of, or the performance of its obligations under, this Agreement or the consummation of the transactions contemplated hereby.

 

Section 4.20.                      Brokers, Finders and Investment Bankers.

 

Except as set forth on Schedule 4.20, none of the Sellers nor any officer, member, manager or employee of the Sellers or any Affiliate of the Sellers has employed any broker, finder or investment banker or incurred any Liability for any investment banking fees, financial advisory fees, brokerage fees or finders’ fees in connection with the transactions contemplated by this Agreement.

 

  

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Section 4.21.                      Taxes.

 

(a)           Except as set forth on Schedule 4.21(a), each Seller has timely filed (or caused to be timely filed) or has filed all appropriate extensions for time to file all Tax Returns required to be filed by it for all Pre-Closing Tax Periods that will have been required to be filed on or prior to the Closing Date and all such Tax Returns are true, correct and complete in all material respects.

 

(b)           Each Seller has timely paid (or caused to be timely paid) all Taxes for all Pre-Closing Tax Periods, whether or not shown (or required to be shown) on any Tax Return, that will have been required to be paid on or prior to the Closing Date, the non-payment of which would result in a Lien on any of the Assets, would otherwise adversely affect the Business or would result in the Purchaser becoming liable or responsible therefor.  Each Seller has complied with all applicable Laws relating to the collection, payment and withholding of Taxes.

 

(c)           Each Seller has adequate funds for the payment of all Tax Liabilities, assessments, interest and penalties which arise from or with respect to the Assets or the operation of the Business and are incurred in or attributable to the Pre-Closing Tax Period, the non-payment of which would result in a Lien on any of the Assets, would otherwise adversely affect the Business or would result in the Purchaser becoming liable therefor.

 

(d)           Schedule 4.21(d) sets forth as of the Closing Date those taxable years for which the Sellers’ Tax Returns are currently being audited by any taxing authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as set forth in Schedule 4.21(d), neither of the Sellers has been notified that any Tax authority has raised any issues in connection with any Tax Return relating to Taxes, and to the Knowledge of the Sellers, no basis exists for any such issues to be raised; there are no pending Tax audits and no waivers of statutes of limitations have been given or requested and no Seller has otherwise agreed to any extension of time with respect to a Tax assessment or deficiency. Except as set forth in Schedule 4.21(d), neither of the Sellers nor any of their respective predecessors is liable for any Taxes: (i) under any agreement (including any Tax sharing agreements), (ii) as a transferee or (iii) under Treasury Regulation Section 1.1502-6(a) or any analogous or similar state, local or foreign Law or regulation.

 

(e)           Neither of the Sellers nor any predecessor of either Seller is liable for any Taxes of any other Person: (A) under any agreement (including any Tax sharing or similar agreements), (B) as a transferee or successor by Contract, Law or otherwise or (C) as a result of being a member of a combined, consolidated or unitary group, including under Treasury Regulation Section 1.1502-6(a) or any analogous or similar state, local or foreign Law or regulation.

 

  

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(f)           There are no Liens for Taxes of any Seller or any other Person (other than Taxes not yet due and payable) upon any of the Assets, and as a result of the transactions contemplated hereby, none of the Assets will or could in the hands of the Purchaser subject the Purchaser to any Liability for Taxes of the Sellers or any other Person as a transferee or successor by Contract, Law or otherwise, nor would the nonpayment of any Taxes otherwise adversely affect the Business.

 

(g)           As of the Closing Date, the Sellers have not agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise.

 

(h)           Neither of the Sellers is a foreign Person within the meaning of §1.1445-2(b) of the U.S. Treasury regulations promulgated under Section 1445 of the Code.

 

Section 4.22.                      Ethical Practices.

 

To the Knowledge of the Sellers, neither the Sellers, nor any representative of either of the Sellers, nor any other Person on their behalf has offered or given on their behalf, anything of material value to: (i) any official of a Governmental Entity, any political party or official thereof, or any candidate for political office; (ii) any customer or member of the government; or (iii) any other Person, in any such case while knowing or having reason to know that all or a portion of such money or thing of value may be offered, given or promised, directly or indirectly, to any customer, member of the government or candidate for political office for the purpose of the following: (x) influencing any action or decision of such Person, in such Person’s official capacity, including a decision to fail to perform such Person’s official function; (y) inducing such Person to use such Person’s influence with any government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality to assist the Sellers in obtaining or retaining business for, or with, or directing business to, any Person; or (z) where such payment would constitute a bribe, kickback or illegal or improper payment to assist the Sellers in obtaining or retaining business for, or with, or directing business to, any Person.

 

Section 4.23.                      Solvency, Etc.

 

No Seller is involved in any proceeding by or against it as a debtor before any Governmental Entity under Title 11 of the United States Bankruptcy Code or any other insolvency or debtors’ relief act, whether state, federal or foreign, or for the appointment of a trustee, receiver, liquidator, assignee, sequestrator or other similar official for any part of such Seller’s property.

 

Section 4.24.                      ActiveCare Shares.

 

(a)           Entirely for Own Account. The Sellers are acquiring the ActiveCare Shares for investment and have not previously solicited the transfer, resale or disposal of the ActiveCare Shares and presently do not have a view to, or the purpose of, engaging in a distribution thereof or of any interest therein in any transaction that would be in violation of the securities Laws of the United States or any state thereof.

 

(b)           Restricted Securities. The Sellers understand that the ActiveCare Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and will be “restricted securities” within the meaning of the regulations under the Securities Act, and by reason of the foregoing the ActiveCare Shares may not be resold in the absence of an effective registration statement under, or applicable exemption from, the Securities Act. Notwithstanding the foregoing, any of the Sellers holding the ActiveCare Shares may transfer or distribute the ActiveCare Shares to any other Seller or Affiliate of such Seller in accordance with applicable Law, including applicable securities laws.

 

  

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(c)           Transferability. The Sellers understand that there are substantial restrictions on the transferability of the ActiveCare Shares.  Accordingly, except as provided in Section 6.11, the Sellers may have to hold the ActiveCare Shares indefinitely and it may not be possible for the Sellers to liquidate their investment in the ActiveCare Shares.

 

(d)           Disclosure. Sellers have had an opportunity to review the Exchange Act Documents of ActiveCare, as defined in Section 5.8, and to ask questions and receive answers concerning ActiveCare and the Purchaser and to obtain such additional information as they have requested.  The Sellers are knowledgeable, sophisticated and experienced in business and financial matters and with respect to securities similar to the ActiveCare Shares, and are capable of evaluating the merits and risks of acquiring the ActiveCare Shares.  Each of the Sellers is able to bear the economic risk of its investment in the ActiveCare Shares and is able to afford the complete loss of such investment.  Each of the Sellers has relied solely on the representations and warranties contained herein and its own knowledge about the Sellers and ActiveCare and its subsidiaries in making its decision to acquire the ActiveCare Shares.  If the box relating to “Accredited Investor” status on the Investor Questionnaire, the form of which is set forth on Exhibit E (the “Investor Questionnaire”) has been checked by a Seller, such Seller is an “Accredited Investor” within the meaning of Rule 501(a) of Regulation D under the Securities Act.

 

(e)           Legends. The Sellers understand that the certificates representing the ActiveCare Shares shall bear a legend substantially as follows:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SAID ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.”

 

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

The Purchaser and ActiveCare hereby jointly and severally represent and warrant to the Sellers as follows:

 

Section 5.1.                      Organization.

 

The Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. ActiveCare is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted.  The Purchaser is a wholly owned subsidiary of ActiveCare.

 

  

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Section 5.2.                      Authorization.

 

The Purchaser and ActiveCare have full corporate power and authority to execute and deliver this Agreement and any other certificate, agreement, document or other instrument to be executed and delivered by them in connection with the transactions contemplated by this Agreement (collectively, the “Purchaser Ancillary Documents”), to perform their obligations under this Agreement and the Purchaser Ancillary Documents and to consummate the transactions contemplated by this Agreement and the Purchaser Ancillary Documents.  The execution and delivery of this Agreement and the Purchaser Ancillary Documents by the Purchaser and ActiveCare, the performance by the Purchaser and ActiveCare of their obligations under this Agreement and the Purchaser Ancillary Documents, and the consummation of the transactions provided for in this Agreement and the Purchaser Ancillary Documents have been duly and validly authorized by all necessary corporate action on the part of the Purchaser and ActiveCare.  This Agreement has been and, as of the Closing Date, the Purchaser Ancillary Documents will be, duly executed and delivered by the Purchaser and ActiveCare and do or will, as the case may be, constitute the valid and binding agreements of the Purchaser and ActiveCare, as applicable, enforceable against the Purchaser and ActiveCare, as applicable, in accordance with their respective terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.

 

Section 5.3.                      Absence of Restrictions and Conflicts.

 

The execution, delivery and performance of this Agreement and the Purchaser Ancillary Documents, the consummation of the transactions contemplated by this Agreement and the Purchaser Ancillary Documents and the fulfillment of and compliance with the terms and conditions of this Agreement and the Purchaser Ancillary Documents do not or will not, as the case may be, with the passing of time or the giving of notice or both, violate or conflict with, constitute a breach of or default under, result in the loss of any benefit under, or permit the acceleration of any obligation under, or otherwise require any action, approval, order, authorization, registration, declaration or filing with respect to (a) any term or provision of the charter documents of the Purchaser or ActiveCare, (b) any Contract to which the Purchaser or ActiveCare is a party, (c) any judgment, decree or order of any Governmental Entity to which either the Purchaser or ActiveCare is a party or by which the Purchaser or ActiveCare or any of their properties are bound or (d) any Permit or Law of any Governmental Entity or public or regulatory unit, agency or authority applicable to the Purchaser or ActiveCare, that in any case would be reasonably likely to prevent or materially delay the performance by the purchase of any of its obligations under this Agreement or the consummation of any of the transactions contemplated hereby.

 

Section 5.4.                      Brokers, Finders and Investment Bankers.

 

Neither the Purchaser, nor any officers, directors or employees of the Purchaser nor any Affiliate of the Purchaser, has employed any broker, finder or investment banker or incurred any Liability for any investment banking fees, financial advisory fees, brokerage fees or finders’ fees in connection with the transactions contemplated by this Agreement.

 

  

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Section 5.5.                      Investigations.

 

To the Knowledge of ActiveCare and Purchaser, neither the Purchaser nor any Affiliate of Purchaser is the subject of any investigation by the Securities and Exchange Commission or by any Governmental Entity and no basis exists for any such investigation that would be material to the Purchaser or such Affiliate’s finances, operations, or prospects.

 

Section 5.6.                      Offering Exemption.

 

Assuming the accuracy of the representations and warranties of the Sellers in Section 4.24, the ActiveCare Shares to be issued by ActiveCare as set forth in this Agreement will be issued pursuant to valid exemptions from registration under the Securities Act and all applicable state securities or “blue sky” laws.

 

Section 5.7.                      ActiveCare Shares.

 

As of the date of issuance, the ActiveCare Shares will have been duly authorized and will be validly issued, fully paid and non-assessable.  The authorized capital stock of ActiveCare consists of 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock.  As of September 30, 2012, (i) approximately 46,369,771 shares of ActiveCare Common Stock were issued and outstanding, (ii) 480,000 shares of non-voting Series C Preferred Stock were issued and outstanding, (iii) approximately 491,503 shares of Series D Preferred Stock were issued and outstanding, (iv) options to purchase approximately 13,865,871 shares of ActiveCare Common Stock were issued and outstanding pursuant to ActiveCare’s stock option plans and (v) 0 shares of ActiveCare Common Stock were reserved for future issuance pursuant to ActiveCare’s stock option plans.  ActiveCare will have as of the Closing Date a sufficient number of authorized shares available to issue the ActiveCare Shares.  The ActiveCare Shares when issued will be free of restrictions on transfer other than the restrictions on transfer under this Agreement and under applicable state and federal securities laws.  Except as set forth in this Section 5.7, there are no options, warrants or other rights outstanding to purchase any of ActiveCare’s authorized but unissued capital stock.  [Note information required from ActiveCare.]

 

Section 5.8.                      Reporting Status.

 

Since October 1, 2009, ActiveCare has filed or furnished with the Securities and Exchange Commission (the “SEC”) all of the documents (each, an “Exchange Act Document”) that ActiveCare was required to file or furnish under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  As of the date of filing thereof, each Exchange Act Document (a) complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such Exchange Act Document and (b) to the Knowledge of ActiveCare, did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Exchange Act Document or necessary in order to make the statements in such Exchange Act Documents, in light of the circumstances under which they were made, not misleading.

 

  

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Section 5.9.                      Litigation.

 

There is no action, suit, proceeding, claim, arbitration or investigation that has not been disclosed in the Exchange Act Documents or that, since the date of the latest Exchange Act Document, would give rise to a requirement that ActiveCare file a Current Report on Form 8-K or otherwise would be required to be disclosed under Item 103 for Regulation S-K in any future filing by ActiveCare with the SEC.

 

ARTICLE VI

CERTAIN COVENANTS AND AGREEMENTS

 

Section 6.1.                      Consents; Liens.

 

(a)           To the extent that third party consents relating to (i) Assumed Contracts and (ii) all other Assets (subject to regulatory and other third party procedures) have not been obtained by the Sellers as of the Closing, the Sellers shall, during the remaining term of such Assumed Contracts and other Assets (the “Non-Assignable Contracts”), use each of their respective commercially reasonable efforts to (a) obtain the consent of the applicable third party, (b) make the benefit of such Non-Assignable Contracts and other Assets available to the Purchaser and (c) enforce at the request of the Purchaser and at the expense and for the account of the Purchaser, any rights of the Sellers arising from such Non-Assignable Contracts and other Assets against the other party or parties thereto (including the right to elect or terminate any such Non-Assignable Contracts in accordance with the terms thereof).  The Sellers will not take any action or suffer any omission which would limit or restrict or terminate in any material respect the benefits to the Purchaser of such Non-Assignable Contracts or other Assets unless, in good faith and after consultation with and prior written notice to the Purchaser, the Sellers are ordered orally or in writing to do so by a Governmental Entity of competent jurisdiction or the Sellers are otherwise required to do so by Law; provided that if any such order is appealable, the Sellers will, at the Sellers’ cost and expense, take such actions as are reasonably requested by the Purchaser to file and pursue such appeal and to obtain a stay of such order.  With respect to any such Non-Assignable Contract or other Assets as to which the necessary approval or consent for the assignment or transfer to the Purchaser is obtained following the Closing, the Sellers shall transfer such Non-Assignable Contract to the Purchaser by execution and delivery of an instrument of conveyance reasonably satisfactory to the Purchaser within three (3) Business Days following receipt of such approval or consent. The Purchaser shall cooperate promptly and fully with all reasonable requests from any third party, and all reasonable requests from the Sellers, in each case, relating to an approval or consent to assignment of one or more Assumed Contracts.  Notwithstanding anything in this Section 6.1(a) to the contrary, the Purchaser shall be responsible for the expense of transferring, assigning, or reissuing Permits (including provider numbers).  For the avoidance of doubt, the provisions of this Section 6.1(a) shall apply to any Real Property Leases that qualify as Non-Assignable Contracts.

 

(b)           To the extent that, as of the Closing, (i) any Liens other than Permitted Liens relating to the Assets, the Business or the Sellers have not been released or (ii) any evidence of the release of any Liens other than Permitted Liens relating to the Assets, the Business or the Sellers has not been obtained or delivered to the Purchaser, the Sellers shall use each of their respective best efforts to have such Liens released and/or such evidence obtained and delivered to the Purchaser as soon as possible, at the Sellers’ expense.

 

  

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Section 6.2.                      Public Announcements.  Subject to their respective legal obligations, the Purchaser and the Sellers shall consult with one another regarding the timing and content of all announcements regarding any aspect of this Agreement or the transactions contemplated hereby to the financial community, Governmental Entities, employees, customers or the general public and shall use reasonable efforts to agree upon the text of any such announcement prior to its release. Notwithstanding the foregoing, none of the Sellers shall publicly announce the existence of the Agreement, the terms of the Agreement or the transactions contemplated hereby until the Purchaser or ActiveCare files with the SEC a Current Report on Form 8-K regarding this Agreement. The Purchaser or its Affiliate shall give the Sellers prompt written notice of the filing of such Form 8-K. In addition, the Purchaser shall be responsible for the timing and content of communications to customers of the Sellers and acknowledges that it has already made some such communications in the course of its due diligence and/or in preparation for the closing of the transactions contemplated hereby.

 

Section 6.3.                      Insurance.  If requested by the Purchaser, the Sellers shall in good faith cooperate with the Purchaser and take all actions reasonably requested by the Purchaser, at Purchaser’s sole expense and no additional risk to the Sellers, for deductible, stop loss or similar provisions that are necessary or desirable to permit the Purchaser to have available to it following the Closing the benefits (whether direct or indirect) of the insurance policies maintained by or on behalf of the Sellers with respect to the Business, the Assets or the Assumed Liabilities that are currently in force.

 

Section 6.4.                      Non-Competition.

 

(a)           Until three (3) years after the Closing Date (the “Three Year Non-Compete Period”), neither the Sellers nor their Affiliates Rob Gallup and Shawn Ross (together with the Sellers, collectively the “Restricted Sellers”) shall, and neither the Sellers nor the Restricted Sellers shall permit their respective Affiliates to, directly or indirectly, own, manage, control, participate in, consult with, render services for, or in any manner engage in or represent any business within any Restricted Territory that is competitive with the business of the Purchaser and its Affiliates, including in particular, the Business conducted by Sellers and purchased from Sellers hereunder (the “Restricted Business”) or any product of the Restricted Business. As used in this Agreement, “Restricted Territory” means any portion of the United States.

 

(b)           Nothing herein shall prohibit the Sellers from being a passive owner of not more than one percent (1.0%) of the outstanding stock of any class of a corporation which is publicly traded, so long as the Sellers have no active participation in the business of such corporation.

 

(c)           The Restricted Sellers understand that the foregoing restrictions may limit the their ability to earn a livelihood in a business similar to the Business, but nevertheless believe that each Restricted Seller has received and will receive sufficient consideration and other benefits as provided hereunder to clearly justify such restrictions which, in any event (given each Restricted Seller’s education, skills and ability), the Restricted Sellers do not believe would prevent them from otherwise earning a living.  Each Restricted Seller has carefully considered the nature and extent of the restrictions placed upon him, her or it by this Agreement, and hereby acknowledges and agrees that the same are reasonable in time, scope and territory, do not confer a benefit upon the Purchaser or any of its Affiliates disproportionate to the detriment of the Restricted Sellers, are reasonable and necessary for the protection of the Purchaser and its Affiliates and are an essential inducement to the Purchaser to consummate the transactions contemplated by this Agreement.

 

  

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(d)           If, at the time of enforcement of this Section 6.4, a court or arbitrator holds that the restrictions stated herein are unreasonable under the circumstances then existing, the Parties agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area determined to be reasonable under the circumstances by such court or arbitrator, as applicable.

 

(e)           The Sellers and each Restricted Seller covenants and agrees that the Sellers and such Restricted Seller will not seek to challenge the enforceability of the covenants contained in this Section 6.4 against the Purchaser or ActiveCare, nor will any of them assert as a defense to any action seeking enforcement of the provisions contained in this Section 6.4 (including an action seeking injunctive relief) that such provisions are not enforceable due to lack of sufficient consideration received by the Restricted Sellers.  The Parties hereto agree and acknowledge that money damages would be an inadequate remedy for any breach of this Section 6.4.  Therefore, in the event of a breach or threatened breach by the Restricted Sellers of this Section 6.4, the Purchaser or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of this Section 6.4 (without posting a bond or other security).

 

Section 6.5.                      No Intent to Induce Referrals.  Each of the Purchaser and the Sellers acknowledges and agrees that no portion of the Purchase Price payable by the Purchaser to the Sellers pursuant to this Agreement is intended to represent a payment for any referral of future business to the Purchaser, or to any of the Purchaser’s officers, directors, employees, or Affiliates, that is prohibited by 42 U.S.C. §1320a-7b, commonly referred to as the “Anti-Kickback Statute.”

 

Section 6.6.                      Cooperation.

 

(a)           The Purchaser and the Sellers shall reasonably cooperate with each other in connection with the preparation or audit of any Tax Return(s) and any Tax claim or litigation in respect of the Business and the Assets, which cooperation shall include, but not be limited to, making reasonably available documents and employees at the expense of the requesting party for the documented out-of-pocket costs of the providing party, if any, capable of providing information or testimony.

 

(b)           The Purchaser and the Sellers shall reasonably cooperate with each other in making available, at the expense of the requesting party for the documented out-of-pocket costs of the providing party and subject to reasonable security and confidentiality requirements, documents and employees of the Purchaser, if any, capable of providing information or testimony regarding any matter related to the Sellers for which the Sellers or either of them retains or may retain a duty or obligation following the Closing, including those duties or obligations arising under Section 6.12 herein.

 

  

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Section 6.7.                      Transfer Taxes.  All excise, sales, use, value added, registration stamp, recording, documentary, conveyancing, franchise, property, transfer, gains and similar Taxes (collectively, “Transfer Taxes”) incurred in connection with the transactions contemplated by this Agreement shall be borne by the Sellers.  The Purchaser and the Sellers shall cooperate in providing each other with any appropriate resale exemption certifications and other similar documentation.  The Party that is required by applicable law to make the filings, reports, or returns with respect to any applicable Transfer Taxes shall do so, and the other Party shall cooperate with respect thereto as necessary.

 

Section 6.8.                      Employees.

 

(a)           Commencing on the Closing Date, the Sellers shall terminate all employees of the Business who are actively at work on the Closing Date, and, at the Purchaser’s sole discretion, the Purchaser may offer employment, on an “at will” basis, to any such employees.

 

(b)           The Sellers shall be solely responsible and the Purchaser shall have no obligations whatsoever for any compensation or other amounts payable to any employee (or former employee) of the Sellers, including, without limitation, bonus, salary (including, without limitation, salary related to overtime and work-related travel), fringe, pension or profit sharing benefits, or severance pay payable to any employee (or former employee) of the Sellers for any period relating to the service with the Sellers at any time prior to the Effective Time (except accrued vacation and sick days as set forth on Schedule 2.4(b)) and the Sellers shall pay all such amounts to all entitled employees on or prior to the Effective Time or otherwise in accordance with its routine payroll procedures.

 

(c)           The Sellers shall remain solely responsible for the satisfaction of all claims for medical, dental, life insurance, health accident or disability benefits brought by or in respect of employees (or former employees), agents or “leased” employees of the Sellers which claims relate to events occurring prior to the Effective Time.  The Sellers also shall remain solely responsible for all worker’s compensation claims of any employees (or former employees), agents or “leased” employees of the Sellers which relate to events occurring prior to the Effective Time.  The Sellers shall pay, or cause to be paid, all such amounts to the appropriate Persons as and when due.

 

Section 6.9.                      Cooperation with Financial Statements.  The Sellers will cooperate with the Purchaser and provide reasonable assistance to the Purchaser (including causing its personnel to be available for interviews during normal working hours and subject to the Sellers’ reasonable security and confidentiality requirements) in connection with the preparation by the Purchaser or its Affiliates or accountants and other representatives of any historical or pro forma financial statements.

 

Section 6.10.                      Philippines Bonus Reimbursement.  The Seller’s shall reimburse the Purchaser an amount equal to (x) two-thirds of the actual aggregate amount Green Wire Outsourcing pays to its employees in the Philippines as a bonus for calendar year 2012, which amount shall be determined substantially in accordance with past practices, (the “Philippines Bonus Amount”), less (y) $12,593.02, less (z) the Estimated Philippines Bonus Reimbursement Amount (the “Final Philippines Bonus Reimbursement Amount”).  When the Philippines Bonus Reimbursement Amount has been paid in full to the applicable employees, the Purchaser shall notify the Sellers’ in writing of its calculation of the Final Philippines Bonus Reimbursement Amount.  If the Final Philippines Bonus Amount is a positive amount, then the Purchaser may offset such amount from the amount of its then next payment due to the Sellers under the Purchaser’s Promissory Notes with such offset amount being allocated among the Sellers ratably in accordance with the allocation of the Purchase Price among the Sellers set forth on Schedule 3.3.  If the Final Philippines Bonus Reimbursement Amount is a negative amount, then the Purchaser shall pay such amount to the Sellers with the next payment due to the Sellers under the Purchaser’s Promissory Notes with such offset amount being allocated among the Sellers ratably in accordance with the allocation of the Purchase Price among the Sellers set forth on Schedule 3.3.  The parties agree that the Final Philippines Bonus Reimbursement Amount shall in no event exceed $5,000 either in the positive or the negative.

 

  

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Section 6.11.                      Restrictions on ActiveCare Shares.  Except as otherwise provided in Section 4.24(b) the Sellers shall not, without the prior written consent of the Purchaser (which consent shall not be withheld unreasonably), directly or indirectly, sell, offer, contract or grant any option to sell (including, without limitation, any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of (each, a “Transfer”) any ActiveCare Shares, options or warrants to acquire ActiveCare Shares, or securities exchangeable or exercisable for or convertible into ActiveCare Shares currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under the Exchange Act) by the Sellers (or such spouse or family member), or publicly announce an intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading six months after the first day of the first full month following the Closing Date.  Thereafter, each Seller shall be permitted to Transfer up to one-third (1/3) of the sum of (i) the number of ActiveCare Shares originally issued to such Seller pursuant to this Agreement plus (ii) the number of ActiveCare Shares transferred to such Seller by any other Seller pursuant to Section 4.24(b), in each successive three month period, without the prior written consent of the Purchaser.  If a Seller elects to not Transfer all or a portion of the ActiveCare Shares he or she is permitted to so Transfer in any three month period, such Seller may Transfer, upon five (5) Business Days written notice to the Purchaser, all or a portion of such un-Transferred ActiveCare Shares in any subsequent three month period, in addition to the ActiveCare Shares that could otherwise be Transferred by the Seller in such subsequent three month period.  At the end of the third (3rd) three-month period, no restrictions on the Transfer of the ActiveCare Shares other than those imposed by Rule 144 of the Securities Act or other applicable securities laws shall exist, and no notice to Purchaser of a Seller’s intent to Transfer the ActiveCare Shares shall be required.

 

Section 6.12.                      [Reserved.]

 

Section 6.13.                      Retained Employees.  Within twenty (20) days following Closing, the Purchaser shall deliver to Andrew Ball and David Lee (each a “Retained Employee”) offers of employment on terms reasonably acceptable to the Retained Employees and the Purchaser.

 

  

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ARTICLE VII

DELIVERIES AT CLOSING

 

 

Section 7.1.                      Deliveries by the Sellers.

 

At the Closing, the Sellers, as applicable, shall deliver the following items to Purchaser, each in form and substance satisfactory to Purchaser, in its sole discretion:

 

(a)           Consents. All written consents (or waivers with respect to thereto) as described on Schedule 4.11 (all such consents and waivers shall be in full force and effect);

 

(b)           Sellers’ Debt; Release of Liens. Evidence of satisfaction of all obligations for Sellers’ Debt (including any interest, prepayment premiums or penalties and other fees and charges), including (i) true, correct and complete payoff letters, which shall state that, if payment of the amounts set forth in the payoff letters is paid to the parties entitled to such amounts on the Closing Date, such parties will release any and all Liens that they or their Affiliates may have with respect to the Sellers or any of their respective assets and will take all actions necessary to effectuate such release (including executing and delivering to the Purchaser all reasonably necessary documentation in form suitable for filing with all appropriate Governmental Entities) and (ii) satisfactory evidence that all Liens affecting the Assets have been released;

 

(c)           [Reserved.]

 

(d)           Ancillary Documents.

 

(i)           executed deeds, bills of sale, instruments of assignment, certificates of title and other conveyance documents, dated the Closing Date, transferring to the Purchaser all of the Sellers’ right, title and interest in and to the Assets, together with possession of the Assets, including the Bill of Sale (the “Bill of Sale”) substantially in the form of Exhibit F attached hereto;

 

(ii)           documents evidencing the assignment of the Assumed Contracts and the assignment of any Permits, including the Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”) substantially in the form of Exhibit G attached hereto;

 

(iii)           a copy of resolutions of the managers and or the members of the Sellers, as applicable, authorizing the execution, delivery and performance of this Agreement by the Sellers and a certificate executed by the managers of the Sellers, dated the Closing Date, certifying that such resolutions were duly adopted and are in full force and effect;

 

(iv)           copies of all filings and/or notices, if any, made by the Sellers with Governmental Entities in connection with the consummation of the transactions contemplated by this Agreement and the Sellers’ Ancillary Documents;

 

(v)           a certificate of the Secretary of State (or other applicable office) of the state in which each of the Sellers is organized and qualified to do business, dated as of a date not more than thirty (30) Business Days prior to the Closing Date, certifying as to the existence of the Sellers;

 

  

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(vi)           a list of all customers on service with the Sellers as of the Closing Date (the “Customer List”);

 

(vii)           duly executed and delivered Investor Questionnaires from each Seller;

 

(viii)           a duly executed Security Agreement; and

 

(ix)           all other documents required to be entered into by the Sellers pursuant to this Agreement or reasonably requested by the Purchaser to convey the Assets to the Purchaser or to otherwise consummate the transactions contemplated by this Agreement.

 

Section 7.2.                      Deliveries by the Purchaser to the Sellers.

 

At the Closing, the Purchaser shall deliver the following items to the Sellers:

 

(a)           documents evidencing the assumption of the Assumed Contracts, the acceptance of Permits and the assumption of the Assumed Liabilities, including the Assignment and Assumption Agreement;

 

(b)           a copy of the resolutions of the board of directors of the Purchaser and ActiveCare authorizing the execution, delivery and performance of this Agreement by the Purchaser and ActiveCare and a certificate of its secretary or assistant secretary, dated as of the Closing Date, that such resolutions were duly adopted and are in full force and effect;

 

(c)           [Reserved.]

 

(d)           all other documents required to be entered into or delivered by the Purchaser at or prior to the Closing pursuant to this Agreement or the Purchaser Ancillary Documents;

 

(e)           the Purchaser’s Promissory Notes, duly executed by Purchaser;

 

(f)           the Security Agreement, duly executed by the Purchaser; and

 

(g)           the Guaranty, duly executed by ActiveCare.

 

No later than four (4) Business Days following the Closing Date, the Purchaser shall deliver stock certificates representing the ActiveCare Shares.

 

ARTICLE VIII

CLOSING

 

The closing of the transactions contemplated by this Agreement (the “Closing”), unless another date is agreed to by the Parties, shall take place at the offices of Durham Jones & Pinegar, PC, 111 East Broadway, Suite 900, Salt Lake City, Utah 84111 on November __, 2012 (the “Closing Date”) or at such other place as the Parties may agree, and will be effective as of the Effective Time.

 

  

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ARTICLE IX

INDEMNIFICATION

 

 

Section 9.1.                      Indemnification Obligations of the Sellers.

 

Subject to the limitations set forth in Sections 9.3 and 9.5, and the provisions of Section 9.6, the Sellers will, jointly and severally, indemnify, defend and hold harmless the Purchaser and its Affiliates, each of their respective officers, directors, employees, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Purchaser Indemnified Parties”) from, against and in respect of any and all claims, Liabilities, losses (whether or not involving a third party claim), costs, expenses, penalties, fines and judgments (at equity or at law) and damages whenever arising or incurred (including, without limitation, amounts paid in settlement, costs of investigation and reasonable attorneys’ fees and expenses) arising out of, relating to or in connection with:

 

(a)           any Liability of the Sellers arising out of the ownership or operation of the Assets prior to the Effective Time, except the Assumed Liabilities;

 

(b)           any breach or inaccuracy of any representation or warranty made by the Sellers in this Agreement or in the Sellers’ Ancillary Documents;

 

(c)           any breach of any covenant, agreement or undertaking made by the Sellers in this Agreement or in the Sellers’ Ancillary Documents;

 

(d)           any fraud or willful misconduct of the Sellers in connection with this Agreement or the Sellers’ Ancillary Documents; and

 

(e)           any fees, expenses or other payments incurred or owed by the Sellers to any brokers, financial advisors or comparable other Persons retained or employed by the Sellers in connection with the transactions contemplated by this Agreement, and the Sellers’ Ancillary Documents.

 

The claims, Liabilities, losses (including, without limitation, diminution in value of the Assets), costs, expenses (including reasonable attorneys’ and accountants’ and other professionals’ fees and litigation expenses), penalties, fines and damages as to which the Purchaser Indemnified Parties are entitled to indemnification are hereinafter collectively referred to as the “Purchaser Losses.”

 

Section 9.2.                      Indemnification Obligations of the Purchaser.

 

Subject to the limitations set forth in Sections 9.3 and 9.5, the Purchaser and ActiveCare will, jointly and severally, indemnify, defend and hold harmless the Sellers and their respective managers, officers, members, employees, agents and representatives (collectively, the “Sellers’ Indemnified Parties”) from, against and in respect of any and all claims, Liabilities, costs, losses (whether or not involving a third party claim), expenses, penalties, fines and judgments (at equity or at law) and damages whenever arising or incurred (including, without limitation, amounts paid in settlement, costs of investigation and reasonable attorneys’ fees and expenses) arising out of or incurred (including without limitation, amounts paid in settlement costs of investigation and reasonable attorneys’ fees and expenses) arising out of, relating to or in connection with:

 

  

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(a)           the Purchaser’s failure to perform, discharge or satisfy the Assumed Liabilities as such Assumed Liabilities come due;

 

(b)           any breach or inaccuracy of any representation or warranty made by the Purchaser or ActiveCare in this Agreement or in any of the Purchaser Ancillary Documents;

 

(c)           any breach of any covenant, agreement or undertaking made by the Purchaser in this Agreement or in any of the Purchaser Ancillary Documents; or

 

(d)           any fraud or willful misconduct of the Purchaser in connection with this Agreement or the Purchaser Ancillary Documents.

 

The claims, Liabilities, costs, expenses (including reasonable attorneys’ fees and accountants and other professional fees and litigation expenses), penalties, fines and damages of the Sellers’ Indemnified Parties described in this Section 9.2 as to which the Sellers’ Indemnified Parties are entitled to indemnification are hereinafter collectively referred to as “Sellers’ Losses.”

 

Section 9.3.                      Limitations on Indemnification.

 

(a)           Indemnity Baskets for the Sellers. Subject to Section 9.3(c), the Purchaser Indemnified Parties shall not have the right to be indemnified pursuant to Section 9.1(c) for breaches of representations and warranties unless and until the Purchaser Indemnified Parties shall have incurred on a cumulative basis aggregate Losses in an amount exceeding $25,000 (the “Indemnity Threshold”), in which event the right to be indemnified shall apply to all such Losses, including the amount of the Indemnity Threshold.

 

(b)           Exceptions to the Indemnity Limitations for the Sellers.

 

(i) The amount of any Loss for which the Purchaser Indemnified Parties shall be entitled to recover under Section 9.1 shall be net of any insurance proceeds actually received by the Purchaser Indemnified Parties (net of enforcement costs, deductibles, premium increases and other similar items) in respect of such Losses.

 

(ii)           The amount of Losses for which the Purchaser Indemnified Parties shall be entitled to recover under Section 9.1 shall not exceed $500,000 except any indemnification obligation pursuant to Section 9.1(d) shall not be subject to such limitation.

 

(c)           Indemnity Limitations for the Purchaser. The Sellers’ Indemnified Parties shall not have the right to be indemnified pursuant to Section 9.2(c) for breaches of representations and warranties unless and until the Seller Indemnified Parties shall have incurred on a cumulative basis aggregate Losses in an amount exceeding the Indemnity Threshold, in which event the right to be indemnified shall apply to all such Losses, including the amount of the Indemnity Threshold.

 

Section 9.4.                      Indemnification Procedure.

 

(a) Promptly after receipt by a Purchaser Indemnified Party or a Sellers’ Indemnified Party (hereinafter collectively referred to as an “Indemnified Party”) of notice by a third party (including any Governmental Entity) of any complaint or the commencement of any audit, investigation, action or proceeding with respect to which such Indemnified Party may be entitled to receive payment from the other Party for any Purchaser Losses or Sellers’ Losses, as the case may be, such Indemnified Party will notify the Purchaser or the Sellers, as the case may be (the “Indemnifying Party”); provided, however, that the failure to so notify the Indemnifying Party will relieve the Indemnifying Party from Liability under this Agreement with respect to such claim only if, and only to the extent that, such failure to notify the Indemnifying Party results in the forfeiture by the Indemnifying Party of rights and defenses otherwise available to the Indemnifying Party with respect to such claim.  Such notice shall contain a copy of such complaint or other notice of commencement. The Indemnifying Party will have the right, upon written notice delivered to the Indemnified Party within ten (10) days thereafter of assuming full responsibility for any Purchaser Losses or Sellers’ Losses, as the case may be, resulting from such audit, investigation, action or proceeding, to assume the defense of such audit, investigation, action or proceeding, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of the fees and disbursements of such counsel.  If, however, the Indemnifying Party declines or fails to assume the defense of the audit, investigation, action or proceeding on the terms provided above or to employ counsel reasonably satisfactory to the Indemnified Party, in either case within such ten (10) day period, then such Indemnified Party may employ counsel to represent or defend it in any such audit, investigation, action or proceeding and the Indemnifying Party will pay the reasonable and documented fees and disbursements of such counsel as incurred; provided, however, that the Indemnifying Party will not be required to pay the fees and disbursements of more than one (1) counsel for all Indemnified Parties in any jurisdiction in any single audit, investigation, action or proceeding. In any audit, investigation, action or proceeding with respect to which indemnification is being sought hereunder, the Indemnified Party or the Indemnifying Party, whichever is not assuming the defense of such action, will have the right to participate in such matter and to retain its own counsel at such Party’s own expense.  The Indemnifying Party or the Indemnified Party, as the case may be, will at all times use reasonable efforts to keep the Indemnifying Party or the Indemnified Party, as the case may be, reasonably apprised of the status of the defense of any matter the defense of which they are maintaining and to cooperate in good faith with each other with respect to the defense of any such matter.

 

  

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(b)           No Indemnified Party may settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of the Indemnifying Party, unless (i) the Indemnifying Party fails to assume and maintain the defense of such claim pursuant to Section 9.4(a) or (ii) such settlement, compromise or consent includes an unconditional release of the Indemnifying Party from all Liability arising out of such claim. An Indemnifying Party may not, without the prior written consent of the Indemnified Party, settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder unless (i) such settlement, compromise or consent includes an unconditional release of the Indemnified Party from all Liability arising out of such claim, (ii) does not contain any admission or statement suggesting any wrongdoing or liability on behalf of the Indemnified Party and (iii) does not contain any equitable order, judgment or term which in any manner affects, restrains or interferes with the business of the Indemnified Party or any of the Indemnified Party’s Affiliates.

 

  

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(c)           In the event any Indemnified Party should have a claim for indemnity against any Indemnifying Party that does not involve a third party claim, the Indemnified Party shall deliver notice of such claim with reasonable promptness to the Indemnifying Party.  Such notice shall specify the basis for such claim.  The failure by any Indemnified party so to notify the Indemnifying Party shall not relieve the Indemnifying Party from any Liability that it may have to such Indemnified Party with respect to any claim made pursuant to this Section 9.4(c), it being understood that notices for claims in respect of a breach of a representation or warranty must be delivered prior to the expiration of the survival period for such representation or warranty under Section 9.5.  If the Indemnifying Party does not notify the Indemnified Party within thirty (30) calendar days following its receipt of such notice that the Indemnifying Party disputes its liability to the Indemnified Party under this Article IX, or the amount thereof, the claim specified by the Indemnified Party in such notice shall be conclusively deemed a liability of the Indemnifying Party under this Article IX, and the Indemnifying Party shall pay the amount of such Liability to the Indemnified Party on demand or, in the case of any notice in which the amount of the claim (or any portion of the claim) is estimated, on such later date when the amount of such claim (or such portion of such claim) becomes finally determined. If the Indemnifying Party has timely disputed its liability with respect to such claim as provided above, as promptly as possible, such Indemnifying Party and the Indemnified Party will establish the merits and amount of such claim (by mutual agreement, litigation, arbitration or otherwise) and, within five (5) Business Days of the final determination of the merits and amount of such claim, the Indemnifying Party will pay to the Indemnified Party immediately available funds in an amount equal to such claim as determined hereunder.

 

Section 9.5.                      Claims Period.

 

For purposes of this Agreement, a “Claims Period” shall be the period during which a claim for indemnification may be asserted under this Agreement by an Indemnified Party.  The Claims Periods under this Agreement shall begin on the date hereof and terminate as follows:

 

(a)           with respect to Purchaser Losses or Sellers’ Losses arising out of (x) any covenant or obligation to be performed or complied with prior to the Closing, or (y) a representation or warranty other than in Sections 4.1 (Organization; Ownership), 4.2 (Authorization), 4.3 (Absence of Restrictions and Conflicts) or 4.5 (second sentence only) (Title to Assets; Related Matters), the Claims Period shall terminate on the date that is eighteen (18) months after the Closing Date; and

 

(b)           with respect to all other Purchaser Losses or Sellers’ Losses, the Claims Period shall terminate upon the expiration of the applicable statute of limitation with respect to the underlying claim.

 

Notwithstanding the foregoing, if, prior to the close of business on the last day of the applicable Claims Period, an Indemnifying Party shall have been properly notified of a claim for indemnity hereunder specifying the factual basis of such claim in reasonable detail and such claim shall not have been finally resolved or disposed of at such date, such claim shall continue to survive and shall remain a basis for indemnity hereunder until such claim is finally resolved or disposed of in accordance with the terms hereof.  The Sellers’ indemnification obligations under this Article IX include, without limitation, the obligation to pay and reimburse the Purchaser for all Purchaser Losses, whether or not arising due to third party claims.

 

  

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Section 9.6. Payment of Claims; Obligation to Set off.

 

(a)           Subject to the limitations set forth in Section 9.3, any obligation of the Sellers, as applicable, to indemnify any Purchaser Indemnified Party under this Article XI shall be satisfied by the Sellers, jointly and severally, by prompt payment in cash from the Sellers to the Purchaser or the appropriate Purchaser Indemnified Party, provided the aggregate amount the Sellers shall be obligated to pay in cash shall be limited to the difference between (x) the aggregate amount of cash previously received by the Sellers at the time such indemnification claim arises from the Purchaser in respect of payments of principal of and interest on Purchaser’s Promissory Notes and from the sale by the Sellers of the ActiveCare Shares and (y) the aggregate amount of cash payments made to any Purchaser Indemnified Party in respect of any indemnification claims (the “Cash Cap”).

 

(b)           Thereafter, to the extent the Sellers make cash payments in the amount of the Cash Cap and the applicable indemnification claim has not been satisfied, the Purchaser shall satisfy such remaining indemnification obligation by reducing any continuing payment obligation (including without limitation principal or interest) to the Sellers under the Purchaser’s Promissory Notes (ratably, based upon the amount of the Purchase Price allocated to each Seller) (a “Note Set Off”). The Purchaser shall deliver a written notice to the Sellers that sets forth the amount of any Note Set off and the basis therefor.

 

(c)           For any remaining indemnification obligation not satisfied first pursuant to Section 9.6(a) or (b), the Sellers, jointly and severally, will satisfy such obligation by prompt payment in cash from the Sellers to the Purchaser or the appropriate Purchaser Indemnified Party.

 

(d)           The provisions of this Section 9.6 shall not apply to indemnification obligations pursuant to Section 9.1(d).

 

Section 9.7.                      Sole Remedy for Breach of Representation or Warranty.

 

Except with respect to claims in connection with fraud or intentional misrepresentation, upon and after the Closing, the provisions of Article IX of this Agreement will be the sole and exclusive remedy available to any party to this Agreement for any misstatement or omission by any other party relating to any representation or warranty contained herein, and each party hereby unconditionally waives any other rights that it may have at law or in equity for any misstatement or omission by any other party from any representation or warranty contained herein.

 

 

ARTICLE X

MISCELLANEOUS PROVISIONS

 

  

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Section 10.1.                      Notices.

 

All notices, communications and deliveries under this Agreement will be made in writing signed by or on behalf of the Party making the same, will specify the Section under this Agreement pursuant to which it is given or being made, and will be delivered personally or by facsimile or other electronic transmission or sent by registered or certified mail (return receipt requested) or by next day courier (with evidence of delivery and postage and other fees prepaid) as follows:

 

To the Purchaser:

 

GWire Corporation

c/o ActiveCare, Inc.

5095 West 2100 South

Salt Lake City, UT 84120

801-974-9474 (Telephone)

801-974-9553 (Facsimile)

E-Mail: macton@activecare.com

 

with a copy to:

 

Durham Jones & Pinegar, PC

111 East Broadway, Suite 900

Salt Lake City, Utah 84111

Attn:   Kevin R. Pinegar

Facsimile: 801-415-3500

E-Mail: kpinegar@djplaw.com

 

To the Sellers:

 

Green Wire, LLC

Rapid Medical Response, LLC

Orbit Medical Response, LLC

c/o BPE Management, LLC

Attn: Shawn Ross

4424 South 700 East, Suite 200

Salt Lake City, Utah 84107

Facsimile: 801-713-5347

E-mail: sross@tibromedical.com

 

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

 

Dorsey & Whitney LLP

136 So. Main Street, Suite 1000

Salt Lake City, Utah 84101

Attn:  Samuel P. Gardiner

Facsimile:  (801) 880-6941

Email:  gardiner.sam@dorsey.com

 

or to such other representative or at such other address of a Party as such Party may furnish to the other Parties in writing.  Any notice which is delivered personally or by facsimile or other electronic transmission in the manner provided herein shall be deemed to have been duly given to the Party to whom it is directed upon actual receipt by such Party or its agent.  Any notice which is addressed and mailed in the manner herein provided shall be conclusively presumed to have been duly given to the Party to which it is addressed at the close of business, local time of the recipient, on the fourth Business Day after the day it is so placed in the mail (or on the first Business Day after placed in the mail if sent by overnight courier) or, if earlier, the time of actual receipt.

 

  

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Section 10.2.                      Schedules and Exhibits.

 

The Schedules and Exhibits to this Agreement are hereby incorporated into this Agreement and are hereby made a part of this Agreement as if set out in full in this Agreement.

 

Section 10.3.                      Assignment; Successors in Interest.

 

No assignment or transfer by any Party of such Party’s rights and obligations under this Agreement will be made except with the prior written consent of the other Parties to this Agreement; provided, however, that the Purchaser may assign any or all of its rights, obligations and interests hereunder without any such written consent to any Affiliate of the Purchaser or to any of the Purchaser’s lenders as security for any obligations arising in connection with the financing of the transactions contemplated hereby; provided, further, that Purchaser unconditionally guarantees the full and timely performance by each such assignee of all of Purchaser’s obligations hereunder to the Sellers, Sellers and the Seller Representative (or any combination thereof). Notwithstanding the foregoing, any of the Sellers may, without the prior written consent of and upon reasonable notice to the Purchaser, assign any or all of its rights (but not its obligations) hereunder to any other of the Sellers, or in the case of the Sellers, in the course of bona fide estate planning or estate administration. This Agreement will be binding upon and will inure to the benefit of the Parties and their successors and permitted assigns, and any reference to a Party will also be a reference to a successor or permitted assign.

 

Section 10.4.                      Number; Gender.

 

Whenever the context so requires, the singular number will include the plural and the plural will include the singular, and the gender of any pronoun will include the other genders.

 

Section 10.5.                      Captions.

 

The titles, captions and table of contents contained in this Agreement are inserted in this Agreement only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision of this Agreement. Unless otherwise specified to the contrary, all references to Articles and Sections are references to Articles and Sections of this Agreement and all references to Schedules or Exhibits are references to Schedules and Exhibits, respectively, to this Agreement.

 

 

Section 10.6.                      Controlling Law; Amendment.

 

This Agreement will be governed by and construed and enforced in accordance with the internal laws of the State of Utah without reference to its choice of law rules. This Agreement may not be amended, modified or supplemented except by written agreement of the Parties.

 

  

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Section 10.7.                      Consent to Jurisdiction, Etc.

 

Except as otherwise expressly provided in this Agreement, the Parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought only to the exclusive jurisdiction of the courts of the State of Utah or the federal courts located in the State of Utah, and each of the Parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum.  The Parties agree that, after a legal dispute is before a court as specified in this Section 10.7, and during the pendency of such dispute before such court, all actions, suits, or proceedings with respect to such dispute or any other dispute, including without limitation, any counterclaim, cross-claim or interpleader, shall be subject to the exclusive jurisdiction of such court.  Process in any such suit, action or Proceeding may be served on any Party anywhere in the world, whether within or without the jurisdiction of any such court.  Each Party hereto agrees that a final judgment in any action, suit or Proceeding described in this Section 10.7 after the expiration of any period permitted for appeal and subject to any stay during appeal shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable laws.

 

Section 10.8.                      WAIVER OF JURY TRIAL.

 

EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 10.9.                      Severability.

 

Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by law, the Parties waive any provision of law which renders any such provision prohibited or unenforceable in any respect.

 

Section 10.10.                                Counterparts.

 

This Agreement may be executed in two (2) or more counterparts (delivery of which may be by facsimile or via email as a portable document format (.pdf)), each of which will be deemed an original, and it will not be necessary in making proof of this Agreement or the terms of this Agreement to produce or account for more than one (1) of such counterparts.

 

  

41

  

 

Section 10.11.                                Enforcement of Certain Rights.

 

Nothing expressed or implied in this Agreement is intended, or will be construed, to confer upon or give any Person other than the Parties, and their successors or permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, or result in such Person being deemed a third party beneficiary of this Agreement.

 

Section 10.12.                                Waiver.

 

Any agreement on the part of a Party to any extension or waiver of any provision of this Agreement will be valid only if set forth in an instrument in writing signed on behalf of such Party. A waiver by a Party of the performance of any covenant, agreement, obligation, condition, representation or warranty will not be construed as a waiver of any other covenant, agreement, obligation, condition, representation or warranty. A waiver by a Party of a condition to Closing will not be considered as a waiver of any rights to indemnification that may be claimed by such Party with respect to the matters relating to such waived condition. A waiver by any Party of the performance of any act will not constitute a waiver of the performance of any other act or an identical act required to be performed at a later time.

 

Section 10.13.                                Integration.

 

This Agreement and the documents executed pursuant to this Agreement supersede all negotiations, agreements and understandings (both written and oral) among the Parties with respect to the subject matter of this Agreement and constitutes the entire agreement between and among the Parties. The Parties hereby agree that for purposes of this Agreement (including, but not limited to, indemnification obligations) neither Party has made to the other any representations, warranties or covenants or other disclosures other than those contained in this Agreement.

 

Section 10.14. Cooperation Following the Closing.

 

Following the Closing, each of the Parties shall deliver to the others such further information and documents and shall execute and deliver to the others such further instruments and agreements as the other Party shall reasonably request to consummate or confirm the transactions provided for in this Agreement, to accomplish the purpose of this Agreement or to assure to the other Party the benefits of this Agreement.

 

Section 10.15.                                Transaction Costs.

 

Except as provided above or as otherwise expressly provided herein, (a) the Purchaser will pay its own fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement, including the fees, costs and expenses of its financial advisors, accountants and counsel, and (b) the Sellers will pay the fees, costs and expenses of the Sellers, the Seller Representative and the Sellers incurred in connection with this Agreement and the transactions contemplated by this Agreement, including the fees, costs and expenses of their financial advisors, accountants and counsel.

 

  

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Section 10.16.                                Interpretation; Constructions.

 

(a)           The term “Agreement” means this agreement together with all Schedules and Exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. Unless the context otherwise requires, words importing the singular shall include the plural, and vice versa. The use in this Agreement of the term “including” means “including, without limitation.”  The words “herein”, “hereof,” “hereunder”, “hereby”, “hereto”, “hereinafter”, and other words of similar import refer to this Agreement as a whole, including the Schedules and Exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular article, section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to articles, sections, subsections, clauses, paragraphs, schedules and exhibits mean such provisions of this Agreement and the Schedules and Exhibits attached to this Agreement, except where otherwise stated. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require.  The use in this Agreement of the terms “furnished,” “provided,” “delivered,” “made available” and similar terms refers, with respect to the provision of information and documents to the Purchaser, in addition to the physical delivery of such information or documents to the Purchaser, to such information and/or documents as are made available by the Sellers, or any of their respective employees, consultants, advisors or attorneys.

 

(b)           The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

 

(c)           The Sellers hereby acknowledge and agree that he, she or it has had the opportunity to consult with his, her or its own counsel with respect to the subject matter of this Agreement, has read and understands all of the provisions of this Agreement (including the Schedules and Exhibits to this Agreement) and has had the opportunity to ask questions of, and to seek additional information from, the Purchaser with respect to each of the matters set forth in this Agreement (including the Schedules and Exhibits to this Agreement).

 

[Signature page follows]

 

  

43

  

 IN WITNESS WHEREOF, the Parties have caused this Asset Purchase Agreement to be duly executed, as of the date first above written.

 

	
SELLERS

	
 

RAPID MEDICAL RESPONSE, LLC

 

 

	
By:

	
 

Name:

	
 

Title:

	
 

GREEN WIRE, LLC

 

 

	
By:

	
 

Name:

	
 

Title:

	  
	
ORBIT MEDICAL RESPONSE, LLC

 

 

	
By:

	
 

Name:

	
 

Title:

	  

 

  

44

  

 

	
PURCHASER

 

GWIRE CORPORATION

 

	  	  
	
By:

	  	  
	
 

Name:

	  	  
	
 

Title:

	  	  

 

 

 

The undersigned hereby agree to be bound by the provisions of Section 6.4 of this Agreement.

 

 

________________________

 

Rob Gallup

 

 

 

_________________________

 

Shawn Ross

 

 

 

  

45

  

 

EXHIBIT A

 

 

FORM OF PURCHASERS’ PROMISSORY NOTE

 

  

46

  

 

EXHIBIT B

 

 

SECURITY AGREEMENT

 

  

47

  

 

EXHIBIT C

 

 

GUARANTY

 

  

48

  

 

EXHIBIT D

 

 

OWNERSHIP PERCENTAGES OF SELLERS

 

  

49

  

 

EXHIBIT E

 

 

INVESTOR QUESTIONNAIRE

 

  

50

  

 

EXHIBIT F

 

 

BILL OF SALE

 

  

51

  

 

EXHIBIT G

 

 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

 

 

52

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