Exhibit 2.1

Execution Copy

 

 

ASSET PURCHASE AGREEMENT

among

EDGEWATER TECHNOLOGY-M2, INC.,

M2 DYNAMICS INC.

and

MICHAEL A. KEMBER, BRIAN GRIMES, DARLENE FINN and the RAMBEAU LIVING TRUST

Dated as of December 21, 2015

 

 

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TABLE OF CONTENTS

 

				Page
Section 1.		Definitions.			1
Section 2.		Acquisition by the Buyer.			10
2.1		Purchase and Sale of Acquired Assets.			10
2.2		Excluded Assets.			12
2.3		Assumed and Excluded Liabilities.			12
2.4		Purchase Price; Payment.			14
2.5		The Closing.			16
2.6		Deliveries by the Seller and the Stockholders at the Closing.			17
2.7		Deliveries by the Buyer at the Closing.			17
2.8		Allocation of the Purchase Price.			18
2.9		Tax Treatment of Earnout Consideration.			18
2.10		Non-assignable Assets.			19
Section 3.		Representations and Warranties of the Seller and the Stockholders.			20
3.1		Organization of the Seller.			20
3.2		Authorization of Transaction.			20
3.3		Noncontravention.			20
3.4		Brokers’ Fees.			21
3.5		Financial Statements.			21
3.6		No Undisclosed Liabilities.			21
3.7		Absence of Changes.			21
3.8		Legal and Other Compliance.			23
3.9		Taxes.			23
3.10		Insurance.			24
3.11		Litigation.			24
3.12		Material Contracts and Arrangements.			24
3.13		Assets and Property.			26
3.14		Employees.			26
3.15		ERISA and Related Matters.			27
3.16		Related Party Transactions.			28
3.17		Environmental Matters.			28
3.18		Customers and Vendors.			29
3.19		Accounts Receivable and Accounts Payable.			29
3.20		Condemnation.			29
3.21		Full Disclosure.			30
Section 4.		Representations and Warranties of the Buyer.			30
4.1		Organization of the Buyer.			30
4.2		Authorization of Transaction.			30
4.3		Noncontravention.			30
4.4		Brokers’ Fees.			30

 

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4.5		Approvals.			30
4.6		Litigation.			31
4.7		Availability of Funds.			31
4.8		Full Disclosure.			31
Section 5.		Covenants.			31
5.1		General.			31
5.2		Notices, Consents and Approvals.			31
5.3		Further Assurances.			31
5.4		Employee Matters.			31
5.5		Cooperation after Closing.			32
5.6		Assistance with SEC Filings.			34
Section 6.		Conditions to Obligation to Close.			34
6.1		Conditions to Obligation of the Buyer to Close.			34
6.2		Conditions to Obligation of the Seller to Close.			35
Section 7.		Confidentiality.			35
Section 8.		Tax Cooperation.			36
Section 9.		Survival, Effect of Closing and Indemnification.			36
9.1		Survival of Representations and Warranties; Survival of Covenants and Agreements.			36
9.2		Indemnity by the Seller and the Stockholders.			37
9.3		Indemnity by the Buyer.			38
9.4		Matters Involving Third Parties.			38
9.5		Right of Release or Offset.			39
9.6		Subrogation of the Buyer.			40
9.7		Exclusive Remedy.			40
9.8		Other Limitations on Recovery.			40
Section 10.		[Intentionally Omitted].			41
Section 11.		Miscellaneous.			41
11.1		Press Releases and Public Announcements.			41
11.2		No Third Party Beneficiaries.			41
11.3		No Joint Venture.			41
11.4		Entire Agreement.			41
11.5		Binding Nature.			41
11.6		Counterparts.			41
11.7		Headings.			42
11.8		Notices.			42
11.9		Governing Law.			42
11.10		[Intentionally Omitted].			42
11.11		Amendments and Waivers.			43
11.12		Consent to Jurisdiction.			43
11.13		Severability.			43
11.14		Transfer Fees and Expenses.			43
11.15		Construction.			43

 

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11.16		Incorporation of Exhibits and Schedules.			43
11.17		Specific Performance.			44
11.18		Dispute Resolution.			44
11.19		Attorney-Client Privilege and Waiver of Conflicts.			45

Exhibits

 

Exhibit A		Escrow Agreement
Exhibit B		Earnout Agreement
Exhibit C-1		Non-Compete Agreement for Seller
Exhibit C-2		Non-Compete Agreement for Stockholder
Exhibit D		Parent Guaranty
Exhibit E		Estimated Closing Date Balance Sheet

Schedules

 

Schedule 2.1(a)		Fixed Assets Schedule
Schedule 2.1(j)		Telephone, Domain Name & Email Schedule
Schedule 2.2(k)		Excluded Assets Schedule
Schedule 2.3(a)(ii)		PMSI & Lease Obligations Schedule
Schedule 2.3(a)(iii)		Accrued Payroll Schedule
Schedule 2.4(b)		Seller Wiring Instruction Schedule
Schedule 5.4(a)		Employee Schedule
Schedule 6.1(c)		Seller’s Approvals
Seller Disclosure Schedule

 

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) is entered into as of December 21, 2015 (the “Effective Date”), by and among EDGEWATER TECHNOLOGY-M2, INC., a Delaware corporation (the “Buyer”), M2 DYNAMICS INC., a California corporation (the “Seller”), and Michael A. Kember, Brian Grimes, Darlene Finn and Michael A. Kember and Kevin H. Murakami, Trustees of the Rambeau Living Trust dated March 9, 2013 (each individually, a “Stockholder”, and collectively, the “Stockholders”). Each of the Buyer, the Seller and the Stockholders are each referred to herein as a “Party” or, collectively, as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Seller is owner of all the Acquired Assets; and

WHEREAS, upon the terms and conditions hereinafter set forth, the Seller desires to sell, and the Buyer desires to purchase, collectively, the Acquired Assets; and

WHEREAS, as an inducement for the Buyer to purchase the Acquired Assets from an entity in which a trust is a stockholder and potential indemnitor under this Agreement, Michael A. Kember, who is a trustee of such trust, has agreed to join this Agreement in his individual capacity as a Stockholder.

NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows:

Section 1. Definitions.

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

“AAA” has the meaning set forth in Section 11.18.

“Accountants” has the meaning set forth in Section 2.8.

“Accounts Receivable” means the Seller’s notes and accounts receivable (billed and unbilled, all net of allowances for bad debts) relating to the Business or arising from the Seller’s operations.

“Accrued Payroll Schedule” has the meaning set forth in Section 2.3(a)(iii).

“Acquired Assets” has the meaning set forth in Section 2.1.

“Additional Purchase Consideration Adjustment” has the meaning set forth in Section 2.4(f).

 

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“Affiliate” when used with respect to any Party hereunder, means any Person that, directly or indirectly, through one (1) or more intermediaries, controls, is controlled by, or is under common control with, the specified Party.

“Agreement” has the meaning set forth in the preamble above.

“Assumed Liabilities” has the meaning set forth in Section 2.3(a).

“Attorney-Client Communications” has the meaning set forth in Section 11.19(b).

“Base Closing Consideration” has the meaning set forth in Section 2.4(b).

“Business” means the provision of products and services relating to business intelligence, strategy, ad hoc query and analysis, dashboards, enterprise reporting, mobile analytics, scorecards, multidimensional OLAP, predictive analytics, performance management, strategy management, financial close and reporting, planning, budgeting and forecasting, profitability and cost management, technical architecture management, hardware and software design and architecture, environment performance maximization, performance load testing, backup and recovery, disaster recovery and knowledge transfer, including but not limited to, consulting, design, installation, implementation, configuration, integration, hosting, training, product licensing, product re-sale, managed services and support, each as currently conducted or proposed to be conducted by the Seller.

“Buyer” has the meaning set forth in the preamble above.

“Buyer Material Adverse Effect” means any material adverse change in, or effect on, the business, financial condition, operations, results of operations or future prospects of the Buyer, which could materially adversely affect the Buyer’s ability to perform its obligations under this Agreement.

“Cap” has the meaning set forth in Section 9.2(b).

“Cash” means cash and cash equivalents (including marketable securities and short-term investments) of the Seller as calculated in accordance with GAAP.

“Closing” has the meaning set forth in Section 2.5.

“Closing Consideration” has the meaning set forth in Section 2.4(b).

“Closing Date” has the meaning set forth in Section 2.5.

“Closing Date Statement” has the meaning set forth in Section 2.4(f).

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

“Commercially Reasonable Efforts” means efforts which are reasonably within the contemplation of the Parties at the Effective Date and which do not require the performing Party

 

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to expend any funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder.

“Contracts” means all agreements, contracts, leases, orders, bids and commitments (oral and written) (including any amendments and other modifications thereto) to which the Seller is a party or which are binding on the Seller and which relate to the operation of the Business or the Acquired Assets, including, without limitation, all sales contracts, purchase orders, sales orders, purchase contracts, service contracts, outstanding bids and contracts in process and sales representative or distributorship contracts.

“Customer List” and “Customers” have the meanings set forth in Section 3.18.

“Debt” means any Liabilities (including Liabilities for principal, accrued interest, penalties, fees and premiums) (i) for borrowed money, or with respect to deposits or advances of any kind (other than deposits, advances or excess payments accepted in connection with the sale of products or services in the ordinary course of business), (ii) evidenced by bonds, debentures, notes or similar instruments, (iii) upon which interest charges are customarily paid (other than obligations accepted in connection with the purchase of products or services in the ordinary course of business), (iv) under conditional sale or other title retention agreements, (v) issued or assumed as the deferred purchase price of property or services (other than accounts payable to suppliers incurred in the ordinary course of business and paid when due), (vi) of others secured by (or for which the holder of such Liabilities has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by the Person in question, whether or not the obligations secured thereby have been assumed, and (vii) under leases required to be accounted for as capital leases under GAAP.

“Disclosing Party” has the meaning set forth in the definition of Proprietary Information.

“Dispute Notice” has the meaning set forth in Section 2.4(f).

“Earnout Agreement” has the meaning set forth in Section 2.4(d).

“Effective Date” has the meaning set forth in the preamble above.

“Employee Benefit Arrangement” means: (a) any plan or arrangement providing employees, consultants, contractors or directors with any form of stock or equity options, appreciation rights, phantom interests, purchase rights or other ownership; (b) any bonus, performance or incentive compensation plan, policy, practice or arrangement providing compensation or benefits to employees, consultants, contractors or directors; or (c) any contract, policy or practice providing compensation or benefits to employees, consultants, contractors or directors that is not included in the foregoing categories or in the definition of Employee Pension Benefit Plan or Employee Welfare Benefit Plan.

“Employee Benefit Plan” means any Employee Pension Benefit Plan (including any Multi-Employer Plan), Employee Welfare Benefit Plan or Employee Benefit Arrangement.

 

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“Employee Pension Benefit Plan” means any Employee Pension Benefit Plan (as defined in § 3(2) of ERISA), whether or not such plan is, or is intended to be, qualified under § 401(a) of the Code, and whether or not such plan is subject to Title I, Subtitle B, Part 1, 2, 3 or 4 of ERISA.

“Employee Schedule” has the meaning set forth in Section 5.4(a).

“Employee Welfare Benefit Plan” means: (a) any plan, policy, practice or arrangement providing medical, disability, life or accidental death or dismemberment benefits or subject to § 125 of the Code; (b) any plan, policy, practice or arrangement providing severance benefits, salary or wage continuation or other compensation or benefits upon termination of employment, reduction in hours, change in control, change in ownership, or sale of a substantial portion (including all or substantially all) of the assets of any business or portion thereof, change in employment category or similar event; (c) any plan, policy, practice or arrangement providing for service awards, tuition payments or reimbursement for scholarship; (d) any plan, policy, practice or arrangement providing for paid time off (including, without limitation, holiday pay, sick leave, vacation, leave of absence or disability); (e) any plan, policy, practice or arrangement providing other fringe benefits not included in the foregoing categories (including, without limitation, company cars, relocation assistance and free or reduced costs, products or services); or (f) any Employee Welfare Benefit Plan (as defined in § 3(1) of ERISA) not included in the foregoing categories.

“Environment” means soil, land surface or subsurface strata, real property, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwater, water body sediments, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life (including fish and all other aquatic life) and any other environmental medium or natural resource.

“Environmental Laws” mean the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Air Act (42 U.S.C. § 1860 et seq.), and the Clean Water Act (33 U.S.C. § 1251 et seq.), each as amended or hereinafter in effect, and any other federal, state, local or foreign Laws, as now or hereinafter in effect, relating to: (a) the Release, containment, removal, remediation, response, cleanup or abatement of any sort of any Hazardous Material; (b) the manufacture, generation, formulation, processing, labeling, distribution, introduction into commerce, use, treatment, handling, storage, recycling, disposal or transportation of any Hazardous Material; (c) exposure of Persons, including employees, to any Hazardous Material; (d) the management, use, storage, disposal, cleanup or removal of asbestos, asbestos-containing materials, polychlorinated biphenyls or any other Hazardous Material; (e) the pollution, protection or clean-up of the Environment; or (f) noise.

“Environmental Liabilities” means any Liability under or related to former or current Environmental Laws or the common law arising as a result of or in connection with: (a) loss of life, injury to Persons, property or business or damage to natural resources, caused (or allegedly caused) by the presence or Release of Hazardous Materials at, on, in, under or migrating from the Acquired Assets, including, but not limited to, Hazardous Materials contained in building

 

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materials or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at, on, in, under or migrating from the Acquired Assets; (b) the investigation and/or remediation of Hazardous Materials that are present or have been Released at, on, in, under or migrating from the Acquired Assets, including, but not limited to, Hazardous Materials contained in the Acquired Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at, on, in, under or migrating from the Acquired Assets; (c) loss of life, injury to Persons, property or business or damage to natural resources caused (or allegedly caused) by the offsite disposal, storage, transportation, discharge, Release or recycling, or the arrangement for such activities, of Hazardous Materials, in connection with the Seller’s ownership or operation of the Acquired Assets; and (d) the investigation and/or remediation of Hazardous Materials that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, in connection with the Seller’s ownership or operation of the Acquired Assets.

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

“ERISA Affiliate” means any entity included in the group of entities that are treated as single employer under Section 414(b), (c), (m) or (o) of the Code.

“ERISA Affiliate Plan” means each Employee Benefit Plan that is or has been entered into, maintained, contributed to or administered by an ERISA Affiliate. Such term also includes each Employee Benefit Plan that is or has been entered into, maintained, contributed to or administered by the Seller with respect to employees who are not employed in the Business.

“Escrow Adjustment”, “Escrow Agent”, “Escrow Agreement” and “Escrow Fund” have the meanings set forth in Section 2.4.

“Estimated Closing Date Balance Sheet” means the estimated balance sheet of the Seller, as of 11:59 p.m. Eastern Standard Time on the day immediately prior to the Closing Date, prepared in accordance with GAAP with all amounts in U.S. dollars, a copy of which is attached hereto as Exhibit E.

“Estimated Closing Date Net Working Capital” means, as reflected on the Estimated Closing Date Statement (as set forth in Section 2.4), prepared in accordance with GAAP with all amounts in U.S. dollars and subject to final determination based on the Closing Date Statement, the amount equal to the difference between: (x) the Accounts Receivable and Prepaid Expenses and (y) the Assumed Liabilities.

“Estimated Closing Date Statement” has the meaning set forth in Section 2.4(e).

“Excluded Assets” has the meaning set forth in Section 2.2.

“Excluded Assets Schedule” has the meaning set forth in Section 2.2(k).

“Excluded Liabilities” has the meaning set forth in Section 2.3(b).

“Exhibits” means the exhibits to this Agreement.

 

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“FAS No. 5” has the meaning set forth in Section 3.6.

“Final” or “finally,” when applied to a decision, approval or act of any Governmental Authority, means that the decision, approval or act has occurred, purports to be the final resolution and is unappealable by any Person, including exhaustion of all administrative and judicial appeals or remedies and the running of time periods and statutes of limitation for rehearing and judicial review.

“Final Adjustment Auditor” has the meaning set forth in Section 2.4(f).

“Final Closing Date Balance Sheet” has the meaning set forth in Section 2.4(f).

“Final Closing Date Net Working Capital” means, as reflected on the Closing Date Statement and prepared in accordance with GAAP with all amounts in U.S. dollars, the amount equal to the difference between: (x) the Accounts Receivable and Prepaid Expenses and (y) the Assumed Liabilities.

“Fixed Assets Schedule” has the meaning set forth in Section 2.1(a).

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

“Governmental Authority” means any federal, state, local, foreign or other governmental, regulatory or administrative agency, commission, department, board or other governmental subdivision, court, tribunal, arbitral body or other governmental authority.

“Hazardous Material” or “Hazardous Materials” means oil, petroleum and/or petroleum by-products and hazardous materials or wastes, air emissions, hazardous or toxic substances, wastewater discharges and any chemical, material or substance or other emissions that may give rise to Liability under, or is listed or regulated under, applicable Laws as a “hazardous” or “toxic” substance or waste, or as a contaminant, or is otherwise listed or regulated under applicable Laws because it poses a hazard to human health or the environment, except that ordinary office materials, consumables and supplies used by the Seller in the ordinary course of its business so long as such items are used for their intended purpose and in amounts reasonable for such purposes shall not be considered to be “Hazardous Material.”

“Indemnified Party” has the meaning set forth in Section 9.4(a).

“Indemnified Person” has the meaning set forth in Section 9.8(a).

“Indemnifying Party” has the meaning set forth in Section 9.4(a).

“Intellectual Property” means all domestic and foreign patents and registered and unregistered trade names, fictitious names, logos, brand names and trade expressions, copyrights, trademarks (and associated goodwill), processes, software, proprietary and/or branded products, know-how, trade secrets, service marks and patents, and other proprietary rights, and licenses

 

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and applications for any of the foregoing, used by the Seller in the operation of the Business or necessary to the operation of the Business.

“Interim Financials” has the meaning set forth in Section 3.5.

“Knowledge” shall be attributable to a Person with respect to a particular fact or other matter if:

(a) such Person is actually aware of such fact or other matter; or

(b) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonable inquiry or investigation concerning the truth or existence of such fact or other matter.

“Laws” means all laws, rules, regulations, codes, injunctions, judgments, orders, decrees, rulings, interpretations, constitution, ordinances, common laws or treaties, of any federal, state, local, municipal, foreign, international or multinational government or administration and related agencies.

“Liability” or “Liabilities” means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether secured or unsecured and whether due or to become due), including, without limitation, any liability for Taxes.

“Liability Basket” has the meaning set forth in Section 9.2(b).

“Lien” means any mortgage, pledge, lien, security interest, charge, claim, equitable interest, encumbrance, restriction on transfer, conditional sale or other title retention device or arrangement (including, without limitation, a capital lease), transfer for the purpose of subjection to the payment of any indebtedness, or restriction on the creation of any of the foregoing, whether relating to any property or right or the income or profits therefrom.

“Losses” has the meaning set forth in Section 9.2.

“Material Adverse Effect” means any change in, or effect on, the Business or the Acquired Assets that is materially adverse or could be materially adverse to the financial condition, operations, results of operations or future prospects of the Business as operated on the Effective Date; provided that any such change or effect that is cured to the reasonable satisfaction of the Buyer (as evidenced by written notice from the Buyer) prior to Closing shall not be considered a Material Adverse Effect.

“Material Agreements” has the meaning set forth in Section 3.12(a).

“Multiemployer Plan” has the meaning set forth in ERISA Section 3(37).

“Non-Compete Agreement” has the meaning set forth in Section 2.6(c).

 

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“Parent” means Edgewater Technology, Inc., a Delaware corporation and the direct parent company of the Buyer.

“Parent Guaranty” has the meaning set forth in Section 2.6(e).

“Party” and “Parties” have the meanings set forth in the preamble above.

“Permits” means all certificates, licenses, permits, approvals, consents, orders, exemptions, decisions and other actions of a Governmental Authority pertaining to the Seller and the Business, or the ownership, operation or use of the Acquired Assets.

“Permitted Encumbrances” means any of the following (a) Liens for Taxes, assessments, charges, levies or other claims not yet delinquent to the extent reflected on the Interim Financials; (b) Liens imposed by Law, such as materialmen’s, mechanics’, carriers’, warehousemen’s, workmen’s and repairmen’s liens and other such liens for amounts not yet delinquent; (c) pledges or deposits to secure obligations under workers’ compensation Laws or similar legislation or to secure public or statutory obligations; and (d) any Lien which is included within the Assumed Liabilities.

“Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, a limited liability company, an unincorporated organization or a Governmental Authority.

“PMSI & Lease Obligations Schedule” has the meaning set forth in Section 2.3(a)(ii).

“Prepaid Expenses” means the Seller’s prepaid expenses, excluding any prepaid insurance expenses of the Seller.

“Proprietary Information” means all information about any Party (the “Disclosing Party”) or its properties or operations furnished to any other Party (the “Receiving Party”) or its Representatives by the Disclosing Party or its Representatives, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the Receiving Party or its Representatives in violation of this Agreement; (b) was available to the Receiving Party on a non-confidential basis prior to its disclosure by the Disclosing Party or its Representatives; (c) becomes available to the Receiving Party on a non-confidential basis from a Person, other than the Disclosing Party or its Representatives, who, to the Receiving Party’s Knowledge, is not otherwise bound by a confidentiality agreement with the Disclosing Party or its Representatives, or is not otherwise under any obligation to the Disclosing Party or any of its Representatives not to transmit the information to the Receiving Party or its Representatives; or (d) the Disclosing Party discloses to others on a non-confidential basis.

“Public Filing” has the meaning set forth in Section 5.6.

“Purchase Consideration Adjustment” means, subject to final determination based on the Closing Date Statement (as determined in accordance with Section 2.4(f)), the amount calculated by subtracting $1,217,000 from the Estimated Closing Date Net Working Capital.

 

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“Purchase Price” has the meaning set forth in Section 2.4.

“Purchase Price Allocation Schedule” has the meaning set forth in Section 2.8.

“Rambeau Living Trust” means Michael A. Kember and Kevin H. Murakami, Trustees of the Rambeau Living Trust dated March 9, 2013.

“Receiving Party” has the meaning set forth in the definition of Proprietary Information.

“Reduced Purchase Consideration Adjustment” has the meaning set forth in Section 2.4(f).

“Release” means any actual, threatened or alleged spilling, leaking, pumping, pouring, emitting, dispersing, emptying, discharging, injecting, escaping, leaching, dumping or disposing of any Hazardous Material into the Environment that may cause an Environmental Liability (including the disposal or abandonment of barrels, containers, tanks or other receptacles containing or previously containing any Hazardous Material).

“Representative” means, as to any Person, such Person’s Affiliates and its and their directors, officers, employees, agents and advisors (including, without limitation, financial advisors, counsel and accountants).

“Schedule” means a schedule to this Agreement.

“Seller” has the meaning set forth in the preamble.

“Seller Disclosure Schedule” has the meaning set forth in Section 3.

“Seller Plans” has the meaning set forth in Section 3.15(a).

“Seller’s Approvals” has the meaning set forth in Section 6.1(c).

“Seller’s Knowledge” means the Knowledge of a particular fact or other matter by any of the Stockholders.

“Seller Wiring Instruction Schedule” has the meaning set forth in Section 2.4(b).

“Stockholder” and “Stockholders” have the meanings set forth in the preamble above.

“Survival Period” has the meaning set forth in Section 9.1.

“Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar, including FICA), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

 

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

“Telephone, Domain Name & Email Schedule” has the meaning set forth in Section 2.1(j).

“Third Party” means a Person who is not a Party, an Affiliate of a Party, a Representative of a Party, a Representative of an Affiliate of a Party or a stockholder or member of any of a Party, a Party’s Affiliate or a Party’s Representative.

“Third Party Claim” has the meaning set forth in Section 9.4.

“Transferred Employee” has the meaning set forth in Section 5.4(a).

“Vendor List” and “Vendors” have the meanings set forth in Section 3.18.

“Year End Balance Sheet” and “Year End Financials” have the meanings set forth in Section 3.5(a).

Section 2. Acquisition by the Buyer.

2.1 Purchase and Sale of Acquired Assets. The Seller shall cause the sale and transfer to the Buyer, and the Buyer shall purchase, at the Closing, subject to and upon the terms and conditions contained herein, free and clear of any Liens (except Permitted Encumbrances), all of the right, title and interest that the Seller possesses, in and to the following assets (collectively, the “Acquired Assets”):

(a) all fixed assets, including vehicles, machinery, equipment and furniture and other personal property owned or used by the Seller in the operation of the Business, including, but not limited to, those fixed assets reflected on Schedule 2.1(a) (the “Fixed Assets Schedule”);

(b) all Accounts Receivable;

(c) all inventory, including all materials and supplies, of the Seller relating to the Business or resulting from the operation of the Business;

(d) all Prepaid Expenses;

(e) all of the Seller’s right, title and interest in and to all customer purchase orders, customer accounts, customer contracts, bids and other rights to provide services or materials to customers of the Seller, in existence as of the Closing Date;

(f) the sole and exclusive right, title and interest in and to any and all customer and vendor lists of the Seller;

(g) all business files and records of the Seller relating to the Acquired Assets and/or the Business, including, without limitation, all sales order files, systems order files, purchase

 

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order files, customer lists and records and copies of all legal, accounting and Tax records relating to the Acquired Assets and/or the Business;

(h) all Intellectual Property, including, without limitation, all proprietary and/or branded products of the Seller (including all documentation, formulae or other materials relating to such products), all royalties, rights and interests in connection with any license of such Intellectual Property and including all of the Seller’s right, title and interest in and to the name “M2 Dynamics,” or any other names which are derivative thereof or similar thereto, and all trade names or trade expressions utilized by the Seller in the course of the operation of the Business;

(i) all of the Seller’s right, title and interest in and to the website www.m2-dynamics.com, including any and all computer hardware, computer software (including source code, object code and documentation) and all other equipment, assets or property of the Seller relating thereto or used in connection with the Business;

(j) all of the Seller’s right, title and interest in and to all telephone numbers used by the Seller in the course of the Business and any and all right, title and interest of the Seller in and to any domain names, e-mail addresses or worldwide internet addresses utilized by the Seller in the course of the Business, all as set out in Schedule 2.1(j) (the “Telephone, Domain Name & Email Schedule”); provided, however, that, subject to the obligations of the Stockholders set forth in Section 5.5(d) below, the foregoing will not include the personal telephone numbers, such as mobile and home telephone numbers, and personal email addresses, such as Yahoo! or Google Gmail email addresses, of the employees or Stockholders of the Company;

(k) subject to the provisions of Section 2.10, all of the Seller’s rights under the Contracts that are in effect on the Closing Date, except for any Contract identified on Schedule 2.2(k);

(l) all exclusive distribution rights, marketing rights and similar rights held by or granted to the Seller and any and all Contracts evidencing such rights or relating thereto;

(m) all right, title and interest in the Permits relating to the operation of the Business, to the extent transferable;

(n) all of the Seller’s catalogs, manuals, marketing materials and advertisements and promotional materials;

(o) all other properties and assets of the Seller of every nature, kind and description, tangible or intangible, whether accrued, contingent or otherwise, related to or used or held for use in connection with the Business, as the same may exist on the Closing Date except only for the Excluded Assets; and

(p) all goodwill of the Seller relating to the Acquired Assets and the Business.

 

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2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, there shall be excluded from the sale contemplated hereby the following assets (collectively, the “Excluded Assets”):

(a) all Cash;

(b) the Purchase Price;

(c) any current or deferred federal, foreign, state or local income and franchise Tax receivables of the Seller;

(d) all minute books, organizational documents and share records of the Seller;

(e) any Contracts of the Seller which the Buyer has elected not to assume;

(f) all insurance policies of the Seller and all rights to applicable claims and proceeds thereunder, including prepayments thereunder or returns of premiums;

(g) all Tax assets (including duty and Tax refunds and prepayments) of the Seller;

(h) the rights that accrue or will accrue to the Seller or the Stockholders under this Agreement;

(i) all shares of capital stock issued by the Seller;

(j) except as specifically provided in Section 5.4, any Seller Plan, Multiemployer Plan or ERISA Affiliate Plan (including, for this purpose, any Employee Benefit Plan to which the Seller or an ERISA Affiliate previously contributed to or maintained) and any assets relating to any Employee Benefit Plan; and

(k) all assets of the Seller set forth on Schedule 2.2(k) (the “Excluded Assets Schedule”).

2.3 Assumed and Excluded Liabilities.

(a) On the terms and subject to the conditions set forth herein, from and after the Closing, the Buyer will assume and satisfy or perform when due the following Liabilities (collectively, the “Assumed Liabilities”):

(i) The accounts payable of the Seller existing as of the Closing Date to the extent such accounts payable were incurred in the ordinary course of business, consistent with past practice, and which are reflected in the Estimated Closing Date Balance Sheet;

(ii) Any purchase money security interests or lease obligations relating to the Acquired Assets and which are set forth on Schedule 2.3(a)(ii) (the “PMSI & Lease Obligations Schedule”) and which are properly reflected on the Estimated Closing Date Balance Sheet;

 

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(iii) Accrued payroll for the Seller’s employees as of the Closing Date to the extent such accrued payroll is reflected in the Estimated Closing Date Balance Sheet as set forth on Schedule 2.3(a)(iii) (the “Accrued Payroll Schedule”);

(iv) With respect to any Transferred Employees, responsibility for any accrued, but unpaid or unused, vacation leave, sick leave, holiday leave or other permitted leaves of absence, provided the same have been properly accrued on the Interim Financials and the Estimated Closing Date Balance Sheet;

(v) Subject to the provisions of Section 2.10, all Liabilities arising after the Closing under the Contracts assigned to and assumed by the Buyer; and

(vi) All Liabilities arising out of, relating to or resulting from the Acquired Assets or the Business that are reflected on the Final Closing Date Balance Sheet.

(b) Except for the Assumed Liabilities, the Buyer does not and shall not assume and shall not be liable for any Liabilities of the Seller (collectively, the “Excluded Liabilities”), including without limitation, the following:

(i) The Seller’s Debt, except as expressly assumed in Section 2.3(a) above;

(ii) Liabilities arising out of any events, acts or omissions of the Seller or the Stockholders, or arising out of, relating to or resulting from the Seller’s ownership and use of the Acquired Assets or its conduct of the Business;

(iii) Environmental Liabilities and remediations arising out of events, acts or omissions of the Seller, the Stockholders or any of their Affiliates, employees, servants or agents;

(iv) Liabilities relating to claims or litigation involving or relating to the Business, the Seller and/or the Stockholders for (1) any property damage claims and personal injury claims arising from the products sold or services provided by the Seller; (2) product liability, warranty or customer claims arising from products sold or services provided by the Seller; (3) any litigation described on Schedule 3.11 and (4) fraudulent or illegal acts of the Seller or the Stockholders;

(v) any intercompany indebtedness or payables existing on the Closing Date between the Seller and any of its Affiliates;

(vi) Taxes attributable to the Acquired Assets or the operation of the Business for periods prior to Closing;

(vii) Liabilities with respect to any Seller Plan, Multiemployer Plan or ERISA Affiliate Plan (including, for this purpose, any Employee Benefit Plan to which the Seller or an ERISA Affiliate previously contributed to or maintained), including any severance or change-in-control costs of the Seller associated with any employees of the Seller not hired by the Buyer;

 

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(viii) Fees of the Seller’s attorneys, accountants and other advisors relating to the transactions the subject of this Agreement, whether billed or unbilled; and

(ix) Without limiting the generality of the foregoing, all other Liabilities, contracts, commitments, costs or expenses or other obligations of the Seller or the Stockholders of any nature whatsoever, known or unknown, liquidated or unliquidated, accrued, absolute, contingent or otherwise whether or not related to the Acquired Assets or the operation of Business, including, without limitation, Permitted Encumbrances, except only for the Assumed Liabilities.

The Seller, the Stockholders and the Buyer expressly agree that the Seller shall remain fully liable for the satisfaction and payment of the Excluded Liabilities, whether or not specifically referenced in this Section 2.3(b), and that the Buyer shall have no obligation with respect thereto. Without in any manner limiting the generality of the foregoing, the Buyer does not assume, and shall not be or become liable for any obligations of the Seller or the Stockholders, excepting only the Assumed Liabilities. The Seller and the Stockholders shall take all necessary action to insure that any and all Excluded Liabilities are paid and discharged by the Seller in a prompt and timely fashion.

2.4 Purchase Price; Payment.

(a) The aggregate purchase price payable by the Buyer for the Acquired Assets (the “Purchase Price”) shall be the dollar amount equal to the sum of: (i) the Closing Consideration described in Section 2.4(b), as further adjusted pursuant to Section 2.4(f), plus (ii) the Escrow Fund as described in Section 2.4(c) plus (iii) the Earnout Consideration (as hereinafter defined), if any.

(b) At the Closing, subject to the terms and conditions of this Agreement, the Buyer or the Parent shall deliver to the Seller Sixteen Million One Hundred Thirty-Nine Thousand Seven Hundred and 00/100 Dollars ($16,139,700.00) (the “Base Closing Consideration”) in cash, as further adjusted pursuant to Section 2.4(e), less the Escrow Fund in accordance with Section 2.4(c) (the “Closing Consideration”). Payment of the Closing Consideration to the Seller shall be in accordance with the wire and delivery instructions set forth on Schedule 2.4(b) (the “Seller Wiring Instruction Schedule”).

(c) At the Closing, the Buyer or the Parent shall deliver to U.S. Bank National Association (the “Escrow Agent”), an amount equal to One Million Six Hundred Thirteen Thousand Nine Hundred Seventy and 00/100 Dollars ($1,613,970.00) (the “Escrow Fund”), to be held by the Escrow Agent in escrow pursuant to the terms and conditions of an escrow agreement by and among the Seller, the Buyer, the Stockholders and the Escrow Agent in substantially the form as attached as Exhibit A hereto (the “Escrow Agreement”), to provide the Buyer with security for the indemnification obligations of the Seller and the Stockholders pursuant to Section 9 of this Agreement. Subject to the determination of any claims asserted by the Buyer against the Escrow Fund in accordance with the terms of this Agreement and the Escrow Agreement, the remaining balance of the Escrow Fund, if any, together with any interest accrued on the Escrow Fund, if any, shall be released to the Seller eighteen (18) months from the Closing Date; provided, however, that any amounts reserved for pending indemnity claims

 

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asserted by the Buyer on or prior to the date of the release of the Escrow Fund shall be retained in escrow until such time as such pending indemnity claim of the Buyer is satisfied or settled in accordance with the terms and conditions of this Agreement and the Escrow Agreement. All costs and expenses relating to the Escrow Agent and the administration of the Escrow Fund shall be borne equally by the Seller and the Buyer, with the Seller’s share to be deducted from the Escrow Fund in accordance with the Escrow Agreement.

(d) At the Closing, the Buyer and the Seller shall execute an earnout agreement (the “Earnout Agreement”) in substantially the form of Exhibit B attached hereto, pursuant to which, for the period commencing on the Closing Date and continuing thereafter for a period of one year, the Seller shall be eligible to receive the Earnout Consideration (as defined in the Earnout Agreement).

(e) The Seller shall deliver to the Buyer as of the date hereof (i) the Estimated Closing Date Balance Sheet, a copy of which is attached hereto as Exhibit E, and (ii) a calculation and statement of the Estimated Closing Date Net Working Capital calculated from the Estimated Closing Date Balance Sheet (the “Estimated Closing Date Statement”), each prepared in accordance with GAAP. If the Purchase Consideration Adjustment based on the Estimated Closing Date Statement is greater than $0, the Base Closing Consideration shall be increased on a dollar-for-dollar basis, provided that any Purchase Consideration Adjustment that results in an increase of the Base Closing Consideration shall be included in the Escrow Fund at the Closing (the “Escrow Adjustment”), and subject to Section 2.4(f), shall be released from the Escrow Fund to the Buyer or the Seller (as the case may be) within fifteen (15) days after the Closing Date Statement becomes final and binding. If the Purchase Consideration Adjustment based on the Estimated Closing Date Statement is less than $0, the Base Closing Consideration shall be decreased on a dollar-for-dollar basis.

(f) Within ninety (90) days from the Closing Date, the Buyer shall prepare and provide to the Seller (i) a balance sheet of the Seller, as of 11:59 p.m. Eastern Standard Time on the day immediately prior to the Closing Date (the “Final Closing Date Balance Sheet”), and (ii) a calculation and statement of the Final Closing Date Net Working Capital (the “Closing Date Statement”), each prepared in accordance with GAAP. Upon delivery of the Closing Statement, the Buyer shall provide the Seller with reasonable access to the books, records and working papers of the Buyer to the extent related to the evaluation of the Final Closing Date Balance Sheet and the Closing Date Statement and the calculation of each of the components thereof. The Seller may submit to the Buyer, not later than fifteen (15) days from receipt of the Closing Date Statement from the Buyer, a list of the components of the Closing Date Statement with which the Seller disagrees, if any (a “Dispute Notice”). If no Dispute Notice is provided prior to such date, the Closing Date Statement shall be deemed to have been accepted and agreed to by the Seller and shall be final and binding on the Parties. In the event of a Dispute Notice, the Buyer and the Seller shall thereafter for a period of up to twenty (20) days negotiate in good faith to resolve any items of dispute. Any items of dispute which are not so resolved shall be submitted to the Boston, Massachusetts office of the independent accounting firm of Deloitte & Touche LLP (or such other independent accounting firm of recognized national standing as may be mutually selected by the Buyer and the Seller) (the “Final Adjustment Auditor”), which shall be retained to resolve any such dispute, the expenses of which shall be shared one-half by Buyer and one-half by the Seller. The Final Adjustment Auditor shall determine within sixty (60) days of

 

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receiving such submission whether the Closing Date Statement was prepared in accordance with the standards set forth in this Section 2.4(f) and (only with respect to the remaining disagreements submitted to the Final Adjustment Auditor) whether and to what extent (if any) the Closing Date Statement requires adjustment. The determination of such Final Adjustment Auditor shall be final and binding on the Parties, absent manifest error.

(i) If the Purchase Consideration Adjustment, as finally determined based upon the Closing Date Statement (determined pursuant to the procedures set forth in Section 2.4(f)), exceeds the Purchase Consideration Adjustment determined based on the Estimated Closing Date Statement (such excess, if any, referred to herein as the “Additional Purchase Consideration Adjustment”), the Buyer shall, on or within fifteen (15) days after the Closing Date Statement becomes final and binding, cause the Escrow Agent to release from the Escrow Fund to the Seller in cash the amount of the Purchase Consideration Adjustment, if any, and shall pay to the Seller, in cash, the Additional Purchase Consideration Adjustment.

(ii) If the Purchase Consideration Adjustment, as finally determined based upon the Closing Date Statement (determined pursuant to the procedures set forth in Section 2.4(f)), is less than the Purchase Consideration Adjustment determined based on the Estimated Closing Date Statement (such shortfall, if any, referred to herein as the “Reduced Purchase Consideration Adjustment,” which for purposes below shall be deemed to be a positive number), then, on or within fifteen (15) days after the Closing Date Statement becomes final and binding:

 

1.

If the Reduced Purchase Consideration Adjustment is less than or equal to the Escrow Adjustment, if any, the Seller shall cause the Escrow Agent to release to the Buyer from the Escrow Fund, the amount of the Reduced Purchase Consideration Adjustment and the Buyer shall cause the Escrow Agent to release from the Escrow Fund to the Seller the amount by which the Escrow Adjustment, if any, exceeds the Reduced Purchase Consideration Adjustment.

 

2.

If the Reduced Purchase Consideration Adjustment is more than the Escrow Adjustment, if any, the Seller shall cause the Escrow Agent to release to the Buyer from the Escrow Fund the Escrow Adjustment, if any, and, at the option of the Buyer, the Seller and the Stockholders shall, jointly and severally, pay to the Buyer in cash the amount by which the Reduced Consideration Adjustment exceeds the Escrow Adjustment, if any, or shall cause the Escrow Agent to release from the Escrow Fund to the Buyer the amount by which the Reduced Purchase Consideration Adjustment exceeds the Escrow Adjustment, if any.

2.5 The Closing. Unless otherwise agreed to by the Parties, the closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Hinckley, Allen & Snyder LLP, 28 State Street, Boston, Massachusetts, commencing at 11:00 a.m. Eastern Standard Time on the Effective Date. The date of Closing is hereinafter called the “Closing Date” and shall be effective for all purposes herein as of 12:01 a.m. Eastern Standard Time on the Closing Date.

 

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2.6 Deliveries by the Seller and the Stockholders at the Closing. At the Closing, the Seller and the Stockholders shall deliver the following to the Buyer, duly executed and properly acknowledged, if appropriate:

(a) such bills of sale, assignments and other instruments as shall be reasonably sufficient to transfer title of the Acquired Assets to the Buyer on the terms and conditions set forth herein;

(b) the Escrow Agreement executed by the Seller and the Stockholders;

(c) a non-compete agreement executed by the Seller and each Stockholder (other than Rambeau Living Trust), substantially in the forms attached hereto as Exhibits C-1 and C-2 (the “Non-Compete Agreement”);

(d) the Earnout Agreement executed by the Seller;

(e) a Parent Guaranty accepted by the Seller, substantially in the form attached hereto as Exhibit D (the “Parent Guaranty”);

(f) copies of all of the Seller’s Approvals, unless otherwise waived by the Buyer;

(g) a certificate from an authorized officer of the Seller to the effect that the conditions set forth in Section 6.1 have been satisfied;

(h) a Secretary’s Certificate of the Seller in form and substance reasonably satisfactory to the Buyer;

(i) a Certificate of Good Standing of the Seller issued by the State of California;

(j) evidence, satisfactory to the Buyer, stating that all Taxes due and payable by the Seller have been paid in full and that the Seller is in good standing for each state in which the Seller maintains a place of business issued by the appropriate department of revenue or other similar Governmental Authority; and

(k) all such other instruments of sale, transfer, conveyance, assignment or assumption as the Buyer and its counsel may reasonably request in connection with the sale of the Acquired Assets or assumption of the Assumed Liabilities on the terms and conditions set forth herein.

2.7 Deliveries by the Buyer at the Closing. At the Closing, the Buyer shall deliver or cause to be delivered to the Seller, properly executed and acknowledged, if appropriate:

(a) the Closing Consideration;

(b) the Earnout Agreement executed by the Buyer;

(c) the Escrow Agreement executed by the Buyer;

(d) the Non-Compete Agreements executed by the Buyer;

 

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(e) the Parent Guaranty executed by the Parent;

(f) the offer letters from the Buyer to each of Michael Kember and Brian Grimes in form and substance reasonably satisfactory to such individuals;

(g) a certificate from an authorized officer of the Buyer to the effect that the conditions set forth in Section 6.2 have been satisfied;

(h) a Secretary’s Certificate of the Buyer in form and substance reasonably satisfactory to the Seller; and

(i) counterparts of such assignment and assumption documents as shall be reasonably sufficient to transfer title of the Acquired Assets from the Seller to the Buyer on the terms and conditions set forth herein.

2.8 Allocation of the Purchase Price. Within one hundred twenty (120) days after the Closing, the Buyer shall provide to the Seller a schedule setting forth the allocation of the Purchase Price among the Acquired Assets (the “Purchase Price Allocation Schedule”), which shall be subject to approval by the Seller (such approval not to be unreasonably withheld, delayed or conditioned). The Purchase Price Allocation Schedule shall be prepared in accordance with Section 1060 of the Code. The Parties agree that any Tax Returns or other Tax information they may file or cause to be filed with any Governmental Authority shall be prepared and filed consistently with the Purchase Price Allocation Schedule. In the event of any dispute between the Buyer, on the one hand, and the Seller, on the other hand, with respect to the Purchase Price Allocation Schedule, the Buyer and Seller shall use Commercially Reasonable Efforts to resolve all such disputed items within fifteen (15) days after the receipt by the Seller of the Purchase Price Allocation Schedule. If the Buyer and Seller are unable to resolve all disputed items within such fifteen (15) day period, they shall jointly engage the Boston, Massachusetts office of the independent accounting firm of Deloitte & Touche LLP (the “Accountants”) and submit the disputed items to the Accountants for resolution. The Accountants shall act as experts, and not as arbitrators, and shall determine only those items in dispute on the Purchase Price Allocation Schedule. Promptly, but no later than thirty (30) days after their engagement for such purpose, the Accountants shall deliver a written report to the Buyer and the Seller as to the resolution of the disputed items. The Purchase Price Allocation Schedule, either as approved by the Seller, or as determined by the Accountants as provided above, shall be final and binding upon all the Parties, and the Buyer and the Seller shall each use the Purchase Price Allocation for all relevant Tax purposes. The fees and expenses of the Accountants incurred in connection with the resolution of disputes pursuant to this Section 2.8 shall be allocated between the Buyer, on the one hand, and the Seller, on the other hand, in proportion to the relative aggregate dollar amounts of disputed items that are determined adversely to the Buyer, on the one hand, and the Seller, on the other hand, by the Accountants.

2.9 Tax Treatment of Earnout Consideration. For all income tax purposes, the Earnout Consideration shall be treated by the Parties as a component of the total Purchase Price. To the extent required by U.S. federal income tax regulations, a component of the Earnout Consideration shall be treated as interest paid by the Buyer to the Seller, at the Applicable Federal Rate as defined therein. For purposes of the allocation of the Purchase Price under

 

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Section 2.8, above, the Earnout Consideration shall be allocated to goodwill of the Seller (except for such portion as is allocated to interest). All Parties shall file Tax Returns and Tax reports, including without limitation IRS Form 8594, consistently with this Agreement.

2.10 Non-assignable Assets.

(a) Notwithstanding anything to the contrary in this Agreement, and subject to the provisions of this Section 2.10, to the extent that the sale, assignment, transfer, conveyance or delivery, or attempted sale, assignment, transfer, conveyance or delivery, to the Buyer of any Acquired Asset would result in a violation of applicable Law, or would require the consent, authorization, approval or waiver of a Person who is not a Party or an Affiliate of a Party (including any Governmental Authority), and such consent, authorization, approval or waiver shall not have been obtained prior to the Closing, this Agreement shall not constitute a sale, assignment, transfer, conveyance or delivery, or an attempted sale, assignment, transfer, conveyance or delivery, thereof; provided, however, that, subject to the satisfaction or waiver of the conditions contained in Section 6, the Closing shall occur notwithstanding the foregoing without any adjustment to the Purchase Price. Following the Closing, the Seller and the Stockholders shall use Commercially Reasonable Efforts to obtain any such required consent, authorization, approval or waiver, or any release, substitution or amendment required to novate all liabilities and obligations under any and all assigned Contracts or other liabilities that constitute Assumed Liabilities or to obtain in writing the unconditional release of all parties to such arrangements, so that, in any case, the Buyer shall be solely responsible for such liabilities and obligations from and after the Closing Date; provided, however, that neither the Seller nor the Buyer shall be required to pay any consideration therefor. Once such consent, authorization, approval, waiver, release, substitution or amendment is obtained, the Seller shall sell, assign, transfer, convey and deliver to the Buyer the relevant Acquired Asset to which such consent, authorization, approval, waiver, release, substitution or amendment relates for no additional consideration. Applicable sales, transfer and other similar Taxes in connection with such sale, assignment, transfer, conveyance or license shall be paid by the Buyer and the Seller in accordance with Section 11.14.

(b) To the extent that any Acquired Asset and/or Assumed Liability cannot be transferred to the Buyer following the Closing pursuant to this Section 2.10, the Buyer and the Seller shall use Commercially Reasonable Efforts to enter into such arrangements (such as subleasing, sublicensing or subcontracting) to provide to the Parties the economic and, to the extent permitted under applicable Law, operational equivalent of the transfer of such Acquired Asset and/or Assumed Liability to the Buyer as of the Closing and the performance by the Buyer of its obligations with respect thereto. The Buyer shall, as agent or subcontractor for the Seller, pay, perform and discharge fully the liabilities and obligations of the Seller thereunder from and after the Closing Date. To the extent permitted under applicable Law, the Seller shall hold in trust for and pay to the Buyer promptly upon receipt thereof, such Acquired Asset and all income, proceeds and other monies received by the Seller to the extent related to such Acquired Asset in connection with the arrangements under this Section 2.10. The Seller shall be permitted to set off against such amounts all direct costs associated with the retention and maintenance of such Acquired Assets.

 

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Section 3. Representations and Warranties of the Seller and the Stockholders. The Seller and the Stockholders, jointly and severally, represent and warrant to the Buyer that, except as set forth in a Schedule to this Agreement (the “Seller Disclosure Schedule”), the statements contained in this Section 3 are true, correct and complete as of the Effective Date. The Seller Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Section 3. The Seller Disclosure Schedule shall be subject to the terms and conditions set forth in Section 11.16(b).

3.1 Organization of the Seller. The Seller is duly organized, validly existing and in good standing under the Laws of the State of California, with full power and authority: (a) to own or to hold under lease the property it purports to own or to hold under lease, and (b) to operate its properties and to conduct the Business as now being conducted by the Seller. The Seller is duly qualified or licensed to transact business as a foreign corporation and is in good standing in every jurisdiction in which any property is owned by or leased by the Seller or payroll is paid by the Seller or the nature of the Business conducted by the Seller makes such qualification necessary. Attached hereto as Schedule 3.1 is a list setting forth the states in which the Seller is currently transacting business as a foreign corporation. The Seller has no subsidiaries and does not own any securities issued by any other business corporation or other entity. Michael Kember, Brian Grimes and Darlene Finn, who are the only stockholders of the Seller, own all of the issued and outstanding securities of the Seller, free and clear of any claims, assessments, liens or other encumbrances. There are no preemptive rights, options, warrants, conversion privileges or other rights or agreements presently outstanding for the purchase or acquisition from the Seller of any of its authorized but unissued securities. Neither the Seller nor the Stockholders have granted any Person other than the Buyer any right (including, but not limited to, any right of first refusal) or option to purchase or otherwise acquire any of the Acquired Assets, and there exists no agreement or contract with respect to any such purchase or acquisition. The Seller’s federal employer identification number (FEIN) is set forth on Schedule 3.1.

3.2 Authorization of Transaction. The Seller has the full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All actions or proceedings to be taken by or on the part of the Seller to authorize and permit the due execution and valid delivery by the Seller of this Agreement and the instruments required to be duly executed and validly delivered by the Seller pursuant hereto, the performance by the Seller of its obligations hereunder and thereunder, and the consummation by the Seller of the transactions contemplated herein, have been or will have been prior to the Closing duly and properly taken. This Agreement has been duly executed and validly delivered by the Seller and the Stockholders and constitutes the legal, valid and binding obligation of the Seller and the Stockholders, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other Laws affecting creditors’ rights generally from time to time in effect and to general equitable principles.

3.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will: (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, license or other restriction of any Governmental Authority to which the Seller or any of its property is subject; (b) violate or conflict with any provision of the organizational documents of the Seller; or (c) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create

 

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in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any Contract included in the Acquired Assets or result in the imposition of any Lien upon any of the Acquired Assets. No registration, declaration or filing with, or consent, approval, order or authorization of, or other action by any Governmental Authority or any Person is required on the part of the Seller in connection with the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and/or the Seller’s performance of its obligations hereunder.

3.4 Brokers’ Fees. Neither the Seller nor the Stockholders have any Liability to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated.

3.5 Financial Statements.

(a) Attached as Schedule 3.5 is: (i) the Seller’s unaudited balance sheet as of December 31, 2014 (the “Year End Balance Sheet”) and the related unaudited statement of operations for the year ended December 31, 2014 (collectively, the “Year End Financials”) and (ii) the Seller’s unaudited balance sheet as of September 30, 2015 and the related unaudited statement of operations for the nine months ended September 30, 2015 (collectively, the “Interim Financials”). The Year End Financials and the Interim Financials are true and correct in all material respects and have been prepared in accordance with GAAP consistently applied on a basis consistent throughout the periods indicated and consistent with each other. The Year End Financials and Interim Financials present fairly the financial condition and operating results of the Seller as of the dates and during the periods indicated therein, subject, in the case of the Interim Financials, to normal year-end adjustments.

(b) There exist no Liabilities with respect to the Business including without limitation, Liens with respect to the Acquired Assets, except: (i) as reflected or reserved on the Interim Financials, or (ii) Liabilities that were incurred in the ordinary course of business after the date of the Interim Financials.

3.6 No Undisclosed Liabilities. The Seller has no Liability except as set forth on the Year End Financials or the Interim Financials, other than those Liabilities arising in the ordinary course of the Seller’s business since the date of the Interim Financials, and all Liability reserves established by the Seller and set forth thereon are adequate for all such Liabilities at the respective dates thereof. There are no material loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March, 1995 (“FAS No. 5”) which were not adequately provided for on the Year End Financials or the Interim Financials, respectively, as required by FAS No. 5.

3.7 Absence of Changes. Since January 1, 2015, the Business has been operated in the ordinary course and there has not been:

(a) any Material Adverse Effect in the assets, financial condition or results of operations of the Business;

 

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(b) any casualty, whether or not covered by insurance, in excess of $7,500, other than a casualty relating solely to the Excluded Assets;

(c) any Liability incurred by the Business other than Liabilities incurred in the ordinary course of business;

(d) any payment, discharge or settlement of any claim against or Liability of the Seller except in the ordinary course of business, consistent with past practice;

(e) except in the ordinary course of business or the sale or transfer of worn out or obsolete assets, any sale, transfer or disposal of any assets (other than the Excluded Assets);

(f) any write-down or write off of any assets other than in the ordinary course of business or any revaluation of the Acquired Assets by the Seller;

(g) any pledge, mortgage or encumbrance of any assets, except for Permitted Encumbrances;

(h) any capital expenditures or commitment to make any capital expenditure by the Seller in any individual case in excess of $7,500 or in the aggregate in excess of $15,000;

(i) any change in any accounting methods, policies or practices of the Seller, other than as required by this Agreement;

(j) any forgiveness or cancellation of Debts or waiver of any claims or rights of the Seller;

(k) except in the ordinary course of business and consistent with past practice, any change in the terms of any employment agreement or compensatory arrangement, or any bonus, pension, insurance or other employee benefit plan, or any payment or benefit made to or for any employee;

(l) any failure to pay any Liabilities in the ordinary course of business;

(m) any mortgage, pledge or other encumbrance of any assets of the Seller;

(n) any transaction by the Seller, except in the ordinary course of business, consistent with past practice;

(o) any labor dispute which has affected the financial condition, the Acquired Assets or the Business;

(p) any amendment or termination of any Contract by the Seller, except in the ordinary course of business, consistent with past practice;

(q) any loan by the Seller to any Person, or guaranty by the Seller of any loan;

 

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(r) any other event or condition of any character that has or might reasonably have a Material Adverse Effect; or

(s) any agreement or commitment or understanding, whether in writing or not, to take any of the actions specified in this Section 3.7.

3.8 Legal and Other Compliance. The Seller has operated from its inception, and will continue to operate through the Closing Date, legally and in compliance with all conditions and requirements of all applicable federal, state and local Laws, policies, guidelines, authorizations and consents. The Seller is not in violation of any order, writ, decree or judgment of any Governmental Authority. The Seller has not received notice of any asserted past or present failure to comply with any Laws, permits or requirements. The Seller possesses all Permits required under applicable Laws to carry on the Business as currently conducted.

3.9 Taxes. The Seller has validly elected from the date of its inception to be treated as an “S” corporation pursuant to Section 1361 of the Code. All federal, state, local and foreign Tax Returns and Tax reports required to be filed by the Seller on or before the date hereof have been timely filed with the appropriate Governmental Authority in all jurisdictions in which such returns and reports are required to be filed; all such Tax Returns and Tax reports are true, complete and correct in all respects and were prepared in substantial compliance with all applicable Laws; and all amounts due with respect thereto have been paid. All Taxes which have become due or payable or are required to be collected by the Seller or are otherwise attributable to any periods ending on or before the Closing Date and all interest and penalties thereon, whether disputed or not, have been paid or will be paid in full. The Seller is not subject to liability for Taxes for another Person (including as a member of an affiliated group). There are no Liens with respect to Taxes on any of the Acquired Assets, other than for ad valorum Taxes not yet due and payable. All withholding and deposits required by Law to be made by the Seller with respect to employees’ withholding Taxes, and with respect to all payments made to independent contractors, suppliers, creditors and stockholders, have been duly made, and as of the Closing Date all such deposits due will have been made; the Seller has properly completed and filed or will properly complete and file all forms W-2, 1099 and similar forms with respect thereto. The Seller has delivered to the Buyer true and complete copies of all of the Seller’s state, federal and foreign income Tax Returns for the fiscal periods ended December 31, 2014 and December 31, 2013 and all reports and results of income Tax audits, if any, related thereto. No examination of any Tax Return of the Seller is currently in progress, or, to the Seller’s Knowledge, threatened or contemplated. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any such Tax Return. The Seller has disclosed to the Internal Revenue Service all positions taken on any Tax Return that could give rise to a substantial understatement of federal income Tax liability within the meaning of Section 6662 of the Code. No portion of the Purchase Price is subject to the withholding Tax on nonresident aliens and foreign corporations under Code Sections 1441 and 1442, or to backup withholding under Code Section 3406. None of the Acquired Assets is a United States Real Property Interest within the meaning of Code Section 897(c)(1). The Seller is not a party to any transaction or agreement that is in conflict with the Tax rules on transfer pricing in any relevant jurisdiction. The Seller has not engaged in any “listed” or “reportable” transaction within the meaning of the Treasury Regulations, Section 1.6011-4(b) or any analogous provision of foreign

 

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Law. None of the Assumed Liabilities consists of an obligation to make a payment that is not deductible under Section 280G of the Code.

3.10 Insurance. Schedule 3.10 hereof sets forth a complete and accurate list of all insurance policies of the Seller maintained by the Seller currently and during the three (3) years preceding the Effective Date and the following information with respect to each insurance policy maintained by the Seller: (a) the name of the insurer and the name of each insured party; (b) the policy number and the period of coverage; (c) a description of the scope and the amount of coverage; and (d) a description of any retroactive premium adjustments or other loss-sharing arrangements. Each such policy is currently in full force and effect, all premiums due and payable with respect thereto have been paid in full, the Seller is not in breach or default under the terms of any such policy, and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit any termination, modification, or acceleration under the policy. The Seller has at all times since its inception carried insurance adequate in character and amount, with reputable insurers in respect of its properties, assets and business and has complied with all applicable terms and conditions, including payment of premiums, with respect to such insurance policies. Neither the Seller nor the Stockholders have received notification from any insurance carrier denying or disputing the amount of any claim, or regarding the possible cancellation of or premium increases with respect to any policies. The Seller has provided copies of all policies listed on Schedule 3.10. The Seller shall further maintain, or cause to be maintained, in full force and effect, all of the Seller’s current policies of liability, property damage, fire, worker’s compensation/employer’s liability and other forms of insurance coverage through and including the Closing Date.

3.11 Litigation. There is no action, suit, investigation, claim, arbitration or litigation pending or, to the Seller’s Knowledge, threatened against the Seller, the Acquired Assets, the Business or the transactions contemplated by this Agreement, at law or in equity, or before or by any court, arbitrator or Governmental Authority, and the Seller is not operating under or the subject of any order, award, judgment, writ, decree, determination or injunction of any court, arbitrator or Governmental Authority, except prior judgments which have been fully discharged. There are no existing or, to the Seller’s Knowledge, threatened claims, or any facts on which a claim could be based against the Seller, other than those claims reflected on the Interim Financials.

3.12 Material Contracts and Arrangements.

(a) Schedule 3.12(a) lists:

(i) All leases, contracts, agreements, commitments or purchase orders to which the Seller is a party or by which the Seller or any of its property is bound which involves payments or receipts by the Seller of more than $7,500 in any single case or which the performance of which will extend over a period of one (1) year.

(ii) Any agreement entered concerning a partnership or joint venture pursuant to which the Seller is bound or obligated to perform services.

 

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(iii) All loan agreements, indentures, mortgages and guaranties to which the Seller is a party or by which the Seller or any of its property is bound that will have not been terminated or satisfied as of the Closing Date.

(iv) All agency, distributor, sales representative and similar agreements to which the Seller is bound.

(v) All agreements concerning confidentiality, non-competition or proprietary rights pursuant to which the Seller and/or the Stockholders are bound.

(vi) All profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance or other plan or arrangement (written or oral) of the Seller for the benefit of its current or former directors, officers, and employees.

(vii) All collective bargaining agreements pursuant to which the Seller is bound or subject.

(viii) All agreements of the Seller for the employment of any individual on a full-time, part-time or consulting basis.

(ix) All agreements that will not have been terminated or satisfied as of the Closing Date under which the Seller has advanced or loaned any amount to any of its directors, officers and employees, or which the Seller has received any loan or advance from any of its directors, officers and employees.

(x) Any other agreement (or group of related agreements) of the Seller, the performance of which involves consideration in excess of $15,000.

(xi) Any agreement of the Seller under which the consequences of a default or termination could have a Material Adverse Effect.

(xii) All agreements between the Seller and the Stockholders or their respective Affiliates, which will not be terminated or satisfied as of the Closing Date.

The agreements listed on Schedule 3.12(a) in respect of clauses (i) through (xii) are collectively referred to herein as the “Material Agreements”.

(b) True, complete and correct copies of all of the Material Agreements have been furnished by the Seller to the Buyer and are validly existing, legally enforceable obligations of the parties thereto, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors, rights and remedies generally, and subject to general principles of equity, including principles of unconscionability, commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and the Seller has duly complied with all of the terms and conditions of the Material Agreements in all material respects and has not done or performed any act which would invalidate or materially impair its rights under any of the Material Agreements. There is no pending assertion or claim that operations pursuant to any Material Agreement have been improperly conducted or

 

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maintained, or which would invalidate or materially impair the rights of the Seller, or materially increase the costs of the Seller, under any of the Material Agreements. To the Seller’s Knowledge, each Material Agreement being assigned to the Buyer hereunder and requiring the Seller’s performance of services can be satisfied or performed by the Seller without any material loss to it. No party to any Material Agreement (including the Seller) is in breach or default of the provisions of such Material Agreement, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification or acceleration under the respective Material Agreement.

3.13 Assets and Property.

(a) The Acquired Assets, together with the Excluded Assets, constitute all the assets currently used by the Seller in the operation of the Business. The Seller has title to the Acquired Assets it purports to own, free and clear of all Liens, claims and encumbrances, and valid leasehold interests in all Acquired Assets it purports to lease, except in each case only for the Permitted Encumbrances.

(b) The Seller does not own or lease any real property in connection with the Business.

(c) Schedule 3.13(c) hereof contains an accurate and complete description of all Intellectual Property used by the Seller in the operation of the Business. The Seller owns or has the right to use, and has the right and power to sell and license, said Intellectual Property, and (i) neither said Intellectual Property nor the use thereof by the Seller nor any products manufactured, distributed or sold by the Seller, nor the conduct or operation of the Business, infringes upon any patents, trademarks, copyrights or any other intellectual property rights of any Person; (ii) no claims have been asserted by any Person with respect to the Seller’s Intellectual Property or challenging or questioning the validity of any of said Intellectual Property; (iii) there is no valid basis for any such claim and (iv) to the Seller’s Knowledge, there has never been and there is no infringement of any of the Seller’s Intellectual Property by any Person. Except for commercial, consumer-based products that impose shrink-wrap licenses on all consumers, all licenses for software to which the Seller is a party or which are binding on the Seller are set forth on Schedule 3.13(c) hereof.

3.14 Employees. Attached hereto as Schedule 3.14 is a true and accurate list of the names and addresses of all officers, directors, employees, agents and representatives of the Seller with respect to the Business and their respective rates of compensation (including annual bonuses) of each of the foregoing together with the anticipated date of salary review and all accrued vacation, sick leave, bonuses or other compensation due such Persons. The Seller does not have any written employment contracts or consulting arrangements currently in effect that are not terminable at will. The Seller is not a party to any collective bargaining agreements or other agreements with labor organizations. With respect to all employees and any Persons retained as independent contractors, the Seller has complied with all federal, state, foreign and local Laws respecting employment, employment discrimination, employment practices, terms and conditions of employment, payroll and withholding taxes, wages and hours, and occupational safety and health in the work place. There is no unfair labor practice complaint against the Seller pending before the National Labor Relations Board (or comparable foreign

 

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Governmental Authority) or strike, lockout, dispute or work stoppage pending or threatened against or involving the Seller. No union organization campaign is in progress or threatened against the Seller. No charges, audits, investigations or complaint proceedings are pending or, to the Seller’s Knowledge, threatened before the Equal Employment Opportunity Commission or any state, local, federal or foreign agency responsible for the prevention of unlawful employment practices with respect to the Seller, and there have been no actions taken or conditions caused by any employees or officers of the Seller that would give rise to any such complaint or charge. Neither the Seller nor the Stockholders have received notice of the intent of any federal, state, local or foreign agency to conduct an audit or an investigation of or relating to or including such employees, independent contractors, or employment practices, and, to the Seller’s Knowledge, no such investigations are currently in progress.

3.15 ERISA and Related Matters.

(a) Set forth on Schedule 3.15(a) is a list of each Employee Benefit Plan, which is or has been entered into, maintained, contributed to, or participated in, by the Seller or that currently covers any employee or former employee of the Seller (the “Seller Plans”). None of the Seller Plans is: (i) a “defined benefit pension plan,” as defined in Section 3(35) of ERISA, (ii) subject to the minimum funding requirements of Section 302 of ERISA or Section 412 of the Code, (iii) a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) or a single employee pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Seller or any of its Affiliates would reasonably be expected to incur Liability under Section 4063 or 4064 of ERISA, or (iv) a “multiple employer plan” within the meaning of Section 413(c) of the Code.

(b) All the Seller Plans comply in form and operation in all respects with all applicable requirements of Law, including ERISA and the Code, the terms of the Seller Plans, and the terms of any applicable collective bargaining agreement. Each Seller Plan that is intended to constitute a qualified plan under Section 401(a) of the Code has, at all times, met the requirements for qualification, in form and operation in all respects, and the Seller has provided to the Buyer a true and correct copy of the most recent determination letter or opinion letter issued by the Internal Revenue Service with respect to any such qualified Seller Plans, and any subsequent determination letters or opinion letters with respect to any amendments to any such Seller Plans, and, to the Knowledge of the Seller, no event has occurred, whether by reason of any action or failure to act, which would cause the loss of any such qualification.

(c) There have been no “prohibited transactions” (as described in Section 406 of ERISA or Section 4975 of the Code) with respect to any of the Seller Plans that would result in any material Tax or penalty. There have been no changes in the financial condition of the Seller Plans from that stated in the annual report (as described in Section 103 of ERISA) most recently filed for each such Seller Plan.

(d) There are no actions, lawsuits, arbitrations, audits, inquiries, investigations, proceedings or claims (other than routine claims for benefits made in the ordinary course and qualified domestic relations or medical child support orders) pending or, to the Seller’s Knowledge, threatened with respect to any Seller Plan or the operation thereof (whether brought or threatened to be brought by or against a participant or beneficiary, a trustee, a plan

 

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administrator, the Seller, any ERISA Affiliate or any director, officer or employee thereof and including matters pending before or threatened by the Internal Revenue Service, Department of Labor, or other Governmental Authority), and there are no facts which could give rise to any such action, lawsuit, arbitration, audit, inquiry, investigation, proceeding or claim.

(e) The Acquired Assets are not subject to any Liens under ERISA or the Code, and, no event has occurred, or condition exists, which could subject any of the Acquired Assets to any future Liability or Lien with respect to any Seller Plan, Multiemployer Plan or ERISA Affiliate Plan (including, for this purpose, any Employee Benefit Plan to which the Seller or any ERISA Affiliate previously contributed to or maintained). The Buyer will not assume, incur or succeed to any Liability with respect to any Seller Plan or ERISA Affiliate Plan as a result of this Agreement or the transactions contemplated thereby.

(f) The Seller did not contribute or have any obligation to contribute to any Multiemployer Plan with respect to any Transferred Employee. No event has occurred with respect to any Multiemployer Plan to which the Seller or any of its ERISA Affiliates contribute or have contributed to on behalf of a Transferred Employee, that can reasonably be expected to constitute a “withdrawal” or “partial withdrawal” (as such terms are defined under Title IV of ERISA) with respect to any such Multiemployer Plan that could reasonably be expected to result in a Material Adverse Effect.

(g) Each Transferred Employee will be timely notified of any rights he or she may have under Section 4980B of the Code as a result of the Closing.

(h) Provided the Buyer shall offer employment to those Persons employed by the Seller as of the Closing Date who are listed on Schedule 3.14 as more particularly described in Section 5.4(a), no Seller Plan would give rise to any acceleration of vesting, severance, termination or other payments or Liabilities, including directly or indirectly to the payment of any amount that would not be deductible pursuant to 280G of the Code as a result of the transactions contemplated by this Agreement (either alone or in connection with any other event, whether contingent or otherwise).

3.16 Related Party Transactions. The Seller has not made or entered into any agreement, loan, contract, lease, commitment or understanding with any officer, director, employee, stockholder or partner of the Seller, or with any Affiliate of the Seller, with respect to which the Buyer may have any continuing rights or obligations after Closing.

3.17 Environmental Matters.

(a) The Seller is in compliance with all Environmental Laws applicable to the Business.

(b) The Seller is in possession of all permits, licenses and approvals required by or pursuant to all Environmental Laws that are applicable to the Business, and such permits, licenses and/or approvals are in full force and effect.

 

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(c) There are no pending or, to the Seller’s Knowledge, threatened legal actions, suits, orders, claims or other proceedings, and the Seller has not received any unresolved written notices of violation, requests for information, demands, citations or notice of responsibility against or directed to the Seller arising out of any violation of any Environmental Laws arising out of or resulting from the business operations of the Seller.

(d) The Seller has provided the Buyer with copies of any and all environmental reports in the possession of the Seller or its counsel or other agents, including, but not limited to all environmental site assessments, environmental audits, consultant reports or similar types of documents or reports relating in any way to the Business.

3.18 Customers and Vendors.

(a) Attached hereto as Schedule 3.18(a) is a complete and accurate list (the “Customer List”) of all of the Seller’s customers since January 1, 2015 (the “Customers”). All of the Seller’s right, title and interest in and to such Customers and the Customer List shall be transferred to the Buyer at the Closing. No Customer appearing on the Customer List has refused (or threatened to refuse) to continue to do business with the Seller or, to the Seller’s Knowledge, will refuse to do business with the Buyer after the Closing Date on the same terms and conditions as the Seller did business with such Customer prior to the Closing. There has been no Material Adverse Effect (during the twelve (12) months preceding the Effective Date) on the business relationship between the Seller and any Customer identified in Schedule 3.18(a).

(b) Attached hereto as Schedule 3.18(b) is a complete and accurate list (the “Vendor List”) of all of the Seller’s vendors since January 1, 2015 (the “Vendors”). No Vendor appearing on the Vendor List has refused to (or threatened to refuse to) continue to do business with the Seller or, to the Seller’s Knowledge, will refuse to do business with the Buyer after the Closing Date on the same terms and conditions as the Seller did business with such Vendor prior to the Closing. There has been no Material Adverse Effect (during the twelve (12) months preceding the effective date) on the business relationship between the Seller and any Vendor identified on the Vendor List.

3.19 Accounts Receivable and Accounts Payable. All of the Accounts Receivable as of the Closing Date: (a) arose out of bona fide, arm’s length transactions, (b) are in all respects valid receivables, subject to no rights of set off or counterclaims, (c) are current and collectible and (d) will be collected in accordance with their terms at their recorded amounts. There is no debtor with respect to any of such Accounts Receivable that has refused or threatened to refuse to pay its obligations for any reason, no debtor with respect to any such Accounts Receivable is insolvent or bankrupt, and none of such Accounts Receivable is pledged to any Third Party by the Seller. The accounts payable to be assumed by the Buyer in accordance with Section 2.3(a) of this Agreement represent bona fide claims by vendors or creditors for products, sales, work actually performed or other charges arising on or before the Closing Date, arose out of bona fide, arm’s length transactions and are not past due.

3.20 Condemnation. Neither the Seller nor the Stockholders have received any notice from any Governmental Authority of any pending or threatened proceeding to condemn or take

 

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by power of eminent domain or otherwise, by any Governmental Authority, all or any part of the Acquired Assets or the Business.

3.21 Full Disclosure. No representation or statement made by the Seller or the Stockholders to the Buyer in this Agreement, including the various Schedules and Exhibits to this Agreement, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the representation or statement not misleading.

Section 4. Representations and Warranties of the Buyer. The Buyer represents and warrants to the Seller that the statements contained in this Section 4 are true, correct and complete as of the Effective Date.

4.1 Organization of the Buyer. The Buyer is a duly organized corporation, validly existing and in good standing under the Laws of the State of Delaware.

4.2 Authorization of Transaction. The Buyer has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All actions or proceedings to be taken by or on the part of the Buyer to authorize and permit the due execution and valid delivery by the Buyer of this Agreement and the instruments required to be duly executed and validly delivered by the Buyer pursuant hereto, the performance by the Buyer of its obligations hereunder, and the consummation by the Buyer of the transactions contemplated herein, have been duly and properly taken. This Agreement has been duly executed and validly delivered by the Buyer and constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other Laws affecting creditors’ rights generally from time to time in effect and to general equitable principles.

4.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will: (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, license or other restriction of any Governmental Authority to which the Buyer is subject; (b) violate or conflict with any provision of the certificate of incorporation or bylaws of the Buyer; or (c) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract, lease, license, instrument or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject, except for matters that could not reasonably be expected to have a Buyer Material Adverse Effect.

4.4 Brokers’ Fees. The Buyer does not have any Liability to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated.

4.5 Approvals. No registration, declaration or filing with, or consent, approval, order or authorization of, or other action by any Governmental Authority or any other Person is required on the part of the Buyer in connection with the execution and delivery of this Agreement, the consummation of transactions contemplated by this Agreement and/or the Buyer’s performance of its obligations hereunder.

 

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4.6 Litigation. There is no claim, action, suit, litigation, proceeding or investigation pending or, to the Buyer’s Knowledge, threatened against the Buyer concerning this Agreement or any of the other agreements contemplated hereby or any of the transactions contemplated hereby or thereby.

4.7 Availability of Funds. Subject to the terms and conditions of this Agreement, and assuming performance by the other Parties of their obligations under this Agreement, as of the Closing, the Buyer shall have available to it cash and borrowing capacity that together will be sufficient to enable it to consummate the transactions contemplated under this Agreement and to pay the amounts that are required to be paid by the Buyer in accordance with the terms and conditions of this Agreement and the Earnout Agreement.

4.8 Full Disclosure. No representation or statement made by the Buyer to the Seller or the Stockholders in this Agreement, including the various Schedules and Exhibits to this Agreement, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the representation or statement not misleading.

Section 5. Covenants. The Parties agree as follows:

5.1 General. Each of the Parties will use its Commercially Reasonable Efforts to take all actions and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in Section 6 below).

5.2 Notices, Consents and Approvals. The Parties shall cooperate with each other and use all Commercially Reasonable Efforts to: (a) promptly prepare and file all necessary documentation, (b) effect all necessary applications, notices, petitions and filings and execute all agreements and documents and (c) obtain all necessary consents, approvals and authorizations of all other parties necessary or advisable, for the Parties to consummate the transactions contemplated by this Agreement (including, without limitation, in the case of the Seller, obtaining the Seller’s Approvals).

5.3 Further Assurances. At any time and from time to time after the Closing, at the request of a Party, any other Party will execute and deliver such instruments of sale, assignment and confirmation and take such action consistent with the terms of this Agreement as may be reasonably necessary to consummate more effectively the transactions contemplated by this Agreement.

5.4 Employee Matters.

(a) The employees of the Seller identified on Schedule 5.4(a) (the “Employee Schedule”) shall be offered “at-will” employment by the Buyer on terms and conditions to be determined by the Buyer and provided to the Seller to be effective as of 12:01 a.m. Eastern Standard Time on the Closing Date. Each employee of the Seller who is offered employment by the Buyer shall be terminated by the Seller effective as of 12:01 a.m. Eastern Standard Time on the Closing Date and thereafter employed as a “new hire” by the Buyer. Each such employee hired by the Buyer is referred to herein as a “Transferred Employee.” Any employee of the

 

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Seller who is not hired by the Buyer shall remain an employee of the Seller and may be terminated by the Seller, in its discretion. Nothing contained herein shall be deemed to affect or to limit in any way the prerogative of the Buyer to terminate the employment of any Transferred Employee or to change, modify, suspend or terminate any term of employment (including, any compensation or benefit plan, policy, program or arrangement offered or provided by the Buyer to any Transferred Employee) or to create in, or grant to, any Transferred Employee any third-party beneficiary rights or claims, or any cause of action of any kind or nature.

(b) The Seller shall cooperate as may reasonably be requested by the Buyer with respect to effecting the transition of the Transferred Employees to the Buyer.

(c) The Seller shall be responsible for any legally mandated continuation of health care coverage for any employee, or former employee, of the Seller, including the Transferred Employees, and/or their dependents that have a loss of health care coverage due to a qualifying event on or before the Closing Date.

(d) With respect to any Transferred Employees, the Buyer will assume responsibility for any accrued, but unpaid and/or unused benefits under any Seller Plans (including, without limitation, any Seller Plan that provides for vacation leave, sick leave, holiday leave or other leaves of absence); provided that the same have been properly accrued on the Interim Financials and the Estimated Closing Date Balance Sheet. The Seller shall be solely responsible for any severance, change-in-control or other similar benefits payable to any employee, including any Transferred Employee, on account of the transactions contemplated hereby under any severance plans, programs or arrangements which the Seller may have maintained or is alleged to have maintained.

(e) No provision of this Section shall create any third-party beneficiary rights in any Person, including without limitation, any Transferred Employee, or any employee or former employee (including any beneficiary or dependent thereof) of the Seller, or other representatives of such Transferred Employees, employees or former employees, or trustees, administrators, participants or beneficiary of any employee benefit plan, and no provision of this Section shall create such third-party beneficiary rights in any such Person in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement of the Buyer or the Seller.

(f) The Transferred Employees shall receive credit for all periods of employment and/or service with the Seller and its Affiliates (including service with predecessor employers, where such credit was provided by the Seller or its Affiliates) prior to the Closing Date for purposes of eligibility and vesting (but not for benefit accrual, except for accrual of vacation and severance benefits under the Buyer’s relevant plans and policies, as set forth in this Agreement), including for purposes of satisfying any service requirements for early retirement under any pension plan adopted by the Buyer or its Affiliates with respect to Transferred Employees.

5.5 Cooperation after Closing.

(a) Investigation and Litigation Cooperation. The Buyer and the Seller agree to reasonably cooperate with each other in connection with any investigation by any Governmental

 

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Authority, litigation or regulatory or other proceeding which may continue or arise following the Closing Date and which relates to the operation of the Seller or the Business prior to the Closing Date. In the event and for as long as the Buyer or Seller actively is prosecuting, contesting or defending any action, suit, grievance, proceeding, hearing, investigation, charge, complaint, claim or demand with respect to any Third Party in connection with or related to the Business, the Acquired Assets, the Excluded Assets, the Assumed Liabilities or the Excluded Liabilities, the Transferred Employees, or the non-Transferred Employees, the other Party will reasonably cooperate with such contest or defense and make reasonably available its personnel, records and information applicable to such matter as may be necessary in connection with prudent handling of such prosecution, contest, or defense, at the prosecuting, contesting, or the defending Party’s expense (unless otherwise entitled to indemnification therefore pursuant to this Agreement).

(b) Collection of Accounts Receivable. It is the intent and agreement of the Parties that the Buyer shall be entitled to all income generated from the Accounts Receivable and the Contracts transferred by the Seller to the Buyer pursuant to this Agreement. If any Customer, with respect to any Account Receivable or Contract which belongs to the Buyer pays the Seller, the Seller shall remit to the Buyer, within ten (10) days of the receipt thereof by the Seller, all payments so received from such Customer. The Seller and the Stockholders shall, at no expense to the Buyer, provide such reasonable cooperation and assistance as may be requested by the Buyer from time to time to assist with the collection of any amounts due with respect to any of the Accounts Receivable or any of the Contracts to be transferred by the Seller to the Buyer pursuant to this Agreement. Such cooperation shall include, but not be limited to, reviewing the books and records with respect to any Customer, assisting with communications with any Customer, and appearing as a witness in any legal proceedings relating the collection of any amounts relating to such Accounts Receivable or such Contract. The Buyer shall collect all of such Accounts Receivable for its account in accordance with its reasonable business practices and applicable Law, but shall not be required to bring any action or take any extraordinary steps to collect any such Accounts Receivable. Any Accounts Receivable not collected by the Buyer within one hundred twenty (120) days of the Closing Date shall, at the Buyer’s option, be reassigned to the Seller, and the Buyer may, at its option: (i) request the Escrow Agent to release from the Escrow Fund (in accordance with the terms of the Escrow Agreement) the amount of such uncollected receivables from the Escrow Fund, if available, or (ii) if the remaining balance of the Escrow Fund is insufficient to cover the amount of such uncollected receivables, then the Seller and the Stockholders shall jointly and severally be obligated to pay the Buyer the remaining balance of the uncollected amount of such receivables in cash.

(c) Corporate Name. Simultaneously with the Closing, the Seller shall cause the name of the Seller to be changed to a name that does not include the words “M2” or “Dynamics” or any derivative thereof. As a condition to Closing, the Seller shall deliver to the Buyer a copy of such amendment to the Seller’s charter in the form to be filed with the California Secretary of State in connection with the Closing.

(d) Communications. Each Stockholder agrees that, in the event such Stockholder’s employment with the Buyer is terminated for any reason, the Stockholder shall immediately forward to the Buyer any and all communications of any nature relating to the Business and any and all communications of any nature from any customer, partner or vendor of the Business

 

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which are thereafter received by such Stockholder through his personal telephone numbers, such as mobile and home telephone numbers and/or personal email addresses.

5.6 Assistance with SEC Filings. From and after the Closing Date, the Seller shall provide such information, assistance and cooperation as the Buyer or the Parent may reasonably request in connection with the preparation and filing by the Parent of any registration statement, prospectus, report or other document, the filing of which with any Governmental Authority or stock exchange the Buyer or the Parent believes in good faith to be required by any applicable law, regulation or stock market rule (each such document, a “Public Filing”). Not in limitation of the foregoing, the Seller shall request of any and all of its present and former independent auditors that each such auditor, at the sole cost and expense of the Buyer, (a) cooperate with and assist the Buyer or the Parent in the preparation of financial statements with respect to the business of the Seller as conducted as of and prior to the Closing Date for inclusion in any Public Filing, such financial statements to be in compliance with any applicable requirements of Regulation S-X and Forms 8-K, S-1, S-3 and S-4 of the Securities and Exchange Commission, or any other applicable law, regulation, or stock market rule, and to include any pro forma financial information as may be required thereby; and (b) deliver any consents to the inclusion of financial statements as may be required in connection with any Public Filing.

Section 6. Conditions to Obligation to Close

6.1 Conditions to Obligation of the Buyer to Close. The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Seller and the Stockholders set forth in Section 3 above shall be true, correct and accurate in all respects at and as of the Closing Date (other than such representations and warranties as are made as of a specified date, which need only be true and correct only as of such specified date);

(b) Performance by the Seller and Stockholders. The Seller and the Stockholders shall have performed and complied with all of their covenants, agreements and obligations hereunder;

(c) Seller’s Approvals. The Seller shall have obtained and delivered to the Buyer the consents, approvals, waivers and financing statements set forth on Schedule 6.1(c) (the “Seller’s Approvals”), unless otherwise waived by the Buyer;

(d) Absence of Litigation. No action or proceeding by or before any Governmental Authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) seeking to restrain, prohibit or invalidate the transactions contemplated by this Agreement or prevent, limit, restrict or impair the ownership, use, operation or enjoyment of the Acquired Assets by the Buyer; and

(e) Deliveries. The Seller and the Stockholders shall have complied with the delivery requirements of Section 2.6.

 

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The Buyer may waive any condition specified in this Section 6.1 if it executes a writing so stating at or prior to the Closing and such waiver shall not be considered a waiver of any other provision in this Agreement unless the writing specifically so states.

6.2 Conditions to Obligation of the Seller to Close. The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

(a) Representations and Warranties. The representations and warranties of the Buyer set forth in Section 4 above shall be true, correct and accurate in all respects at and as of the Closing Date (other than such representations and warranties as are made as of a specified date, which need only be true and correct only as of such specified date);

(b) Performance by the Buyer. The Buyer shall have performed and complied with all of its covenants, agreements and obligations hereunder;

(c) Absence of Litigation. No action or proceeding by or before any Governmental Authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) seeking to restrain, prohibit or invalidate the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by the Seller; and

(d) Deliveries. The Buyer shall have complied with the delivery requirements of Section 2.7.

The Seller may waive any condition specified in this Section 6.2 if it executes a writing so stating at or prior to the Closing and such waiver shall not be considered a waiver of any other provision in this Agreement unless the writing specifically so states.

Section 7. Confidentiality.

(a) Each Receiving Party will treat and hold as confidential all of the Proprietary Information, refrain from using any of the Proprietary Information except in connection with this Agreement and transactions contemplated hereby, and deliver promptly to the Disclosing Party or destroy, at the request and option of the Disclosing Party, all tangible embodiments (and all copies) of the Proprietary Information which are in its possession. For purposes of this Section 7, following the Closing, the Seller shall be deemed a Receiving Party (and the Buyer shall be deemed a Disclosing Party) of all Proprietary Information relating to the Acquired Assets. In the event that the Receiving Party is requested or required (by oral question or request for information or documents in any legal proceeding, including, without limitation any interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Proprietary Information, the Receiving Party will notify the Disclosing Party promptly of the request or requirement so that the Disclosing Party may seek an appropriate protective order or waive compliance with the provisions of this Section 7. If, in the absence of a protective order or the receipt of a waiver hereunder, the Receiving Party is, on the advice of counsel, compelled to disclose any Proprietary Information to any tribunal or else stand liable for contempt, then the Receiving Party may disclose the Proprietary Information to the tribunal; provided, however, that the Receiving Party shall use its best efforts to obtain, at the request of the Disclosing Party, an

 

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order or other assurance that confidential treatment will be accorded to such portion of the Proprietary Information required to be disclosed as the Disclosing Party shall designate.

(b) The obligations of the Receiving Party contained in this Section 7 shall be in full force and effect for a period of three (3) years after: (i) the date hereof or (ii) the termination of this Agreement, whichever occurs later, provided, however, that effective as of Closing, the Buyer shall be entitled to use and disclose Proprietary Information in connection with its operation of the Business and the provisions of this Section 7 shall apply to the Buyer only to with respect to Proprietary Information of the Seller not related to the Business.

(c) Upon the Disclosing Party’s prior written approval (such approval not to be unreasonably withheld, delayed or conditioned), the Receiving Party may provide Proprietary Information to any Third Party or Governmental Authority with jurisdiction, as necessary, to obtain any consents, waivers or approvals as may be required for the Receiving Party to undertake the transactions contemplated herein. The Receiving Party will seek confidential treatment for such Proprietary Information provided to any such Governmental Authority and the Receiving Party will notify the Disclosing Party as far in advance as is practicable of its intention to release to any such Governmental Authority any such Proprietary Information.

Section 8. Tax Cooperation. The Buyer and the Seller will cooperate fully with each other in connection with: (a) the preparation and filing of any Federal, state, local or foreign Tax Returns for the operations of the Business prior to the Closing Date, and (b) any audit examination by any Governmental Authority of the returns referred to in clause (a). Such cooperation shall be limited to the furnishing or making available of records, books of account or other materials of the Business necessary or helpful for the defense against assertions of any taxing authority as to any Tax Returns which include operations of the Business prior to the Closing Date; provided, however, that the Party furnishing such material shall be reimbursed by the other Party hereto for the reasonable associated costs and expenses thereof as shall be mutually agreed upon by such Parties.

Section 9. Survival, Effect of Closing and Indemnification

9.1 Survival of Representations and Warranties; Survival of Covenants and Agreements. All representations and warranties of the Parties contained in this Agreement shall survive for a period of eighteen (18) months after the Closing (the “Survival Period”), unless waived in writing by the Party for whose benefit such representations and warranties have been given; provided, however, that: (a) if an Indemnified Party provides proper notice to the Indemnifying Party hereunder of any matter within the scope of an Indemnifying Party’s indemnity obligation within the Survival Period, the Indemnified Party may pursue its claim for indemnification after the Survival Period, in which case the representation or warranty on which it is based shall survive until such claim is resolved; (b) the representations and warranties of the Seller and the Stockholders set forth in Sections 3.2 and 3.13(a) and the representations and warranties of the Buyer set forth in Section 4.2 shall survive the Closing indefinitely; and (c) the representations and warranties of the Seller and the Stockholders set forth in Sections 3.9, 3.15 and 3.17 shall survive until the expiration of the applicable statute of limitations. The covenants and agreements contained in this Agreement that by their terms survive the Closing or termination of this Agreement, as the case may be, shall survive the Closing.

 

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9.2 Indemnity by the Seller and the Stockholders.

(a) Except as otherwise provided in this Agreement, the Seller and the Stockholders hereby agree, jointly and severally, to indemnify, defend and hold harmless the Buyer and its Affiliates against and in respect of all Liabilities, judgments, Liens, injunctions, charges, orders, decrees, rulings, dues, assessments, Taxes, losses, fines, penalties, damages, expenses, fees, costs, and amounts paid in settlement (including, without limitation, reasonable attorneys’ and expert witness fees and disbursements in connection with investigating, defending or settling any action or threatened action), arising out of any claim, damage, complaint, demand, cause of action, audit, investigation, hearing, action, suit or other proceeding asserted or initiated or otherwise existing in respect of any matter (collectively, the “Losses”) (whether or not resulting from a Third Party Claim) that results from:

(i) any breach of a representation or warranty made by the Seller or the Stockholders in or pursuant to this Agreement;

(ii) any default in the performance of any of the covenants or agreements made by the Seller or the Stockholders in this Agreement or any agreement or document referenced herein;

(iii) any failure of the Seller to pay, discharge or perform any of the Excluded Liabilities, or any asserted Liability resulting from any dispute or claim against the Buyer concerning any of the Excluded Liabilities; and

(iv) resulting from or arising out of or relating to the operations or business of the Seller, or resulting from, arising out of, or relating to any act or omission of the Seller or its Stockholders, or the Seller’s directors, officers, employees, consultants or agents except for the Assumed Liabilities.

(b) Except as otherwise provided herein, (i) the Buyer and its Affiliates shall not be entitled to indemnification from the Seller and/or the Stockholders until such time as the claims of indemnification by the Buyer exceed, in the aggregate, One Hundred Sixty-One Thousand Five Hundred Dollars ($161,500.00) (the “Liability Basket”), but then for the full amount of the claims, and (ii) the maximum aggregate liability of the Seller and the Stockholders to the Buyer and its Affiliates with respect to claims under Section 9.2(a) will be limited to, and in no event exceed, an amount equal to one-half of the Purchase Price (the “Cap”). Notwithstanding the foregoing, the Liability Basket and the Cap shall not apply to any indemnification claims of the Buyer in connection with: (i) any willful or intentional breach by the Seller and/or Stockholders of this Agreement or any other agreement, instrument or document executed or delivered by the Seller and/or Stockholders hereunder; (ii) any fraud by the Seller or the Stockholders related to the transactions contemplated hereby; (iii) any breach of any covenant or agreement of the Seller and/or Stockholders contained in this Agreement or any other agreement, document or instrument executed or delivered pursuant hereto; (iv) the Purchase Consideration Adjustment; (v) any obligations of the Seller and/or the Stockholders under Section 5.5(b); (vi) any breach of, or inaccuracy in, any of the representations and warranties of the Seller and/or the Stockholders set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.9, 3.13(a), 3.15, 3.17 and/or 3.19; (vii) Sections

 

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9.2(a)(iii) or 9.2(a)(iv); or (viii) Taxes imposed, or threatened to be imposed, on the Buyer with respect to, or arising out of, the operations of the Business on or prior to the Closing Date.

9.3 Indemnity by the Buyer.

(a) Except as otherwise provided in this Agreement, the Buyer hereby agrees to indemnify, defend and hold harmless the Seller, the Stockholders and their Affiliates against and in respect of all Losses (whether or not resulting from a Third Party Claim) that result from:

(i) the Buyer’s ownership and use of the Acquired Assets and conduct of the Business, in each case after the Closing Date (except, in each instance, for the Excluded Liabilities);

(ii) any breach of a representation or warranty made by the Buyer in this Agreement;

(iii) any default in the performance of any of the covenants or agreements made by the Buyer in this Agreement, the Earnout Agreement or any other agreement, document or instrument executed or delivered by the Buyer pursuant hereto; and

(iv) any failure of the Buyer to pay, discharge, or perform any of the Assumed Liabilities, or any asserted Liability resulting from any dispute or claim against the Seller concerning any of the Assumed Liabilities.

(b) Except as otherwise provided herein, (i) the Seller and the Stockholders shall not be entitled to indemnification from the Buyer until such time as the claims of indemnification by the Seller and the Stockholders exceed, in the aggregate, the Liability Basket, but then for the full amount of the claims, and (ii) the maximum aggregate liability of the Buyer and its Affiliates to the Seller and the Stockholders with respect to claims under Section 9.3(a) will be limited to, and in no event exceed, the Cap. Notwithstanding the foregoing, the Liability Basket and the Cap shall not apply to any indemnification claims of the Seller or the Stockholders in connection with: (i) any willful or intentional breach by the Buyer of this Agreement or any other agreement, instrument or document executed or delivered by the Buyer hereunder; (ii) any fraud by the Buyer related to the transactions contemplated hereby; (iii) any breach of any covenant or agreement of the Buyer contained in this Agreement or any other agreement, document or instrument executed or delivered pursuant hereto; (iv) the Purchase Consideration Adjustment; (v) any breach of, or inaccuracy in, any of the representations and warranties of the Buyer set forth in Sections 4.1, 4.2, 4.3 and/or 4.4; and (v) Section 9.3(a)(iv).

9.4 Matters Involving Third Parties. Subject to the terms and conditions set forth in this Section 9:

(a) If any Third Party shall notify any Party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against any other Party (the “Indemnifying Party”) under this Section 9, then the Indemnified Party shall promptly notify the Indemnifying Party thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the

 

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Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced.

(b) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as: (i) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claims, (ii) the Indemnifying Party provides the Indemnified Party with evidence acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, and (iii) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently.

(c) So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 9.4(b) above, (i) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim, (ii) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (such consent not to be unreasonably withheld, delayed or conditioned), and (iii) the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim unless the Indemnifying Party obtains a full written release of the Indemnified Party from all Liability thereunder.

(d) In the event any of the conditions in Section 9.4(b) above is or becomes unsatisfied, however, (i) the Indemnified Party may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it may deem appropriate (and the Indemnified Party need not consult with or obtain the consent from any Indemnifying Party in connection therewith), (ii) the Indemnifying Party will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third Party Claim (including reasonable attorneys’ fees and expenses) and (iii) the Indemnifying Party will remain responsible for any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 9.

9.5 Right of Release or Offset. Notwithstanding anything to the contrary contained herein, in the event that the Seller and/or the Stockholders shall become obligated to pay any sum hereunder to the Buyer, the Buyer may, in its sole and absolute discretion, without consent from the Seller or the Stockholders, request the Escrow Agent to release from the Escrow Fund the aggregate of all amounts which are due and owing from the Seller and/or the Stockholders to the Buyer pursuant to this Section 9, subject to the terms of the Escrow Agreement. In the event that the Escrow Fund is not sufficient to satisfy any sum due or payable to the Buyer, the Buyer shall be entitled to offset and deduct from the Earnout Consideration or any other monies due and owing the Seller or the Stockholders; provided, however, that if it is ultimately determined by a court or arbitrator of competent jurisdiction that the Buyer was not entitled to the offset, the Buyer shall pay the Seller or the Stockholders, as the case may be, simple interest on the

 

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withheld amount (from the date such amount was due to the Seller or Stockholder through the date of payment of the withheld amount) at an annual rate equal to the prime rate of interest (based on a ten trading-day average ending immediately prior to the date of payment) plus one percent.

9.6 Subrogation of the Buyer. In the event that the Buyer shall become liable for or suffer any damage with respect to any matter which was covered by insurance maintained by the Seller on or prior to the Closing Date and for which coverage is available at the time the claim is asserted, the Buyer shall be and hereby is subrogated to any rights of the Seller under such insurance coverage and shall be entitled to receive any insurance proceeds which the Seller may receive on account of any such Liability or damage.

9.7 Exclusive Remedy. Except with respect to claims based on fraud and claims for equitable relief to enforce the terms of any covenants herein, each of the Parties acknowledges and agrees that its sole and exclusive remedy with respect to any and all claims arising under this Agreement shall be pursuant to the provisions set forth in this Section 9, and each Party hereby waives, to the full extent such Party may do so, any other rights or remedies that may arise under any applicable Law.

9.8 Other Limitations on Recovery.

(a) The amount of any Loss for which indemnification is provided under this Section 9 shall be net of any amounts actually recovered under insurance policies applicable to such Loss. In the event that any Party entitled to indemnification under this Section 9 (the “Indemnified Person”) receives any payment with respect to any Losses pursuant to this Section 9, and thereafter the Indemnified Person receives payment with respect to such Losses from any insurer or other third party, the Indemnified Person shall reimburse the indemnifying Party the amount received by the Indemnified Person.

(b) Any payment or indemnity required to be made pursuant to this Section 9 shall be adjusted to take into account any reduction in Taxes actually realized in the year in which the Loss for which indemnification is sought by the Indemnified Person (which term shall, for purposes of this paragraph, include the ultimate payer(s) of Taxes in the case of an Indemnified Person that is a branch or a disregarded entity or other pass-through entity for any Tax purpose) solely as a direct result of the Loss giving rise to the payment or indemnity.

(c) Notwithstanding anything to the contrary in this Section 9, the Buyer and its Affiliates shall not be entitled to indemnification under this Section 9 with respect to any Loss to the extent that the specific amount of such Loss was expressly taken into account or otherwise reserved against, in each case, resulting in a dollar-for-dollar reduction in the Final Closing Date Net Working Capital.

(d) Notwithstanding anything to the contrary contained herein, no Party shall be liable to any other Party under this Section 9 for any indirect, special or consequential damages or for punitive damages; provided, however, that the foregoing limitation shall not apply to (i) any Party’s indemnification obligations with respect to Third Party Claims, (ii) any claims

 

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resulting from a Party’s willful or intentional breach or (iii) any claims relating to fraud by a Party.

Section 10. [Intentionally Omitted].

Section 11. Miscellaneous

11.1 Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable Law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will provide the other Parties with the opportunity to review in advance the disclosure).

11.2 No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Third Party.

11.3 No Joint Venture. Nothing in this Agreement creates or is intended to create an association, trust, partnership, joint venture or other entity or similar legal relationship among the Parties, or impose a trust, partnership or fiduciary duty on or with respect to any Party. No Party is or shall act as or be the agent or representative of any other Party.

11.4 Entire Agreement. This Agreement (including any other documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.

11.5 Binding Nature. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. As used herein, the term “successor” shall include, but not be limited to, any successor by way of merger, consolidation, share exchange, sale of all or substantially all of its assets, or similar reorganization. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder or thereunder without the prior written approval of the other Parties. Notwithstanding the foregoing, this Agreement, and all rights, interests and obligations hereunder, may be assigned, without such consent, to any entity that acquires all or substantially all of a Party’s business or assets.

11.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Copies (whether photostatic, facsimile or otherwise) of this Agreement may be made and relied upon to the same extent as an original. The exchange of copies of this Agreement and of signature pages by facsimile transmission or e-mail shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted by facsimile or e-mail shall be deemed to be their original signatures for all purposes.

 

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11.7 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

11.8 Notices. All notices, requests, demands, claims and other communications hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given: (a) upon confirmation of facsimile, (b) one business day following the date sent when sent by overnight delivery and (c) four (4) business days following the date mailed when mailed by registered or certified mail return receipt requested and postage prepaid at the following address:

 

If to the Buyer:		With a copy to:
Edgewater Technology-M2, Inc. 200 Harvard Mill Square, Suite 210 Wakefield, MA 01880 Attention: Timothy R. Oakes, CFO Telecopy: (781) 246-9301		Aaron A. Gilman, Esq. Hinckley, Allen & Snyder LLP 28 State Street Boston, MA 02109 Telecopy: (617) 345-9020
If to the Seller or the Stockholders:		With a copy to:
M2 Dynamics Inc. 2967 Michelson Drive, Suite G417 Irvine, CA 92612 Attention: Michael Kember Telecopy: (801) 650-7979		Jeffrey R. Richter, Esq. Blank Rome, LLP 2029 Century Park East Suite 600 Los Angeles, CA 90067 Telecopy: (424) 239-3810

Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. Notwithstanding the foregoing, the failure of one or more of the Stockholders to receive a copy of any notices, requests, demands, claims and other communications delivered by the Buyer to the Seller shall not affect the validity of such notice, request, demand, claim or other communication.

11.9 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic Laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Laws of any jurisdiction other than the State of Delaware.

11.10 [Intentionally Omitted].

 

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11.11 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver by any Party of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

11.12 Consent to Jurisdiction. With respect to enforcement of: (a) an award pursuant to Section 11.18 or (b) specific performance or other equitable relief pursuant to Section 11.17, each of the Parties consents to the nonexclusive jurisdiction of any local, state or federal court located within the Commonwealth of Massachusetts, for adjudication of any suit, claim, action or other proceeding at law or in equity relating to this Agreement, or to any transaction contemplated hereby. The Parties each accept, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts and waive any objection as to venue, and any defense of forum non convenient.

11.13 Severability. Any term or provision of this Agreement that is held invalid or unenforceable in any situation by a court or arbitrator having jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

11.14 Transfer Fees and Expenses. Each of the Seller and the Buyer shall be responsible for the payment of one-half of any and all fees, charges or transfer Taxes (for the avoidance of doubt, excluding income Taxes) incurred in connection with the transfer of any of the Acquired Assets by the Seller to the Buyer. Whether or not the transactions contemplated hereby shall be consummated, each of the Parties will bear its, his or her own costs and expenses and will pay for all services rendered to it in facilitation of the transactions contemplated hereby, including, without limitation, attorneys’ and accountants’ fees.

11.15 Construction. Ambiguities or uncertainties in the wording of this Agreement will not be construed for or against any Party, but will be construed in the manner that most accurately reflects the Parties’ intent as of the Effective Date. The Parties acknowledge that they have been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement.

11.16 Incorporation of Exhibits and Schedules.

(a) The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. The Parties intend that each representation, warranty and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty or covenant.

 

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(b) The Seller Disclosure Schedule shall be subject to the following terms and conditions: (i) no disclosure of any matter contained in the Seller Disclosure Schedule shall create an implication that such matter meets any standard of materiality; and (ii) headings and introductory language have been inserted in the sections of the Seller Disclosure Schedule for convenience of reference only and shall to no extent have the effect of amending or changing the express description of the sections as set forth in this Agreement.

11.17 Specific Performance. Each Party acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each Party agrees that the other Parties shall be entitled to seek injunctive and other equitable relief to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled to hereunder, or at law or in equity.

11.18 Dispute Resolution. The Buyer and the Seller shall attempt in good faith to resolve all claims, disputes and other disagreements arising hereunder by referring any such matter to their respective chief executive officers or other appropriate executive officers for resolution. Either of such Parties may give the other Party written notice of any dispute or claim, and within ten (10) days after delivery of said notice, such executives will meet at a mutually acceptable time and place (and thereafter as often as they reasonably deem necessary) to exchange information and to attempt to resolve the dispute or claim. In the event that a dispute or claim between such Parties cannot be resolved within thirty (30) days after the initial meeting of the executives regarding such dispute or claim, such dispute or claim shall, at the request of either Party, after providing written notice to the other Party, be submitted to binding arbitration in Boston, Massachusetts, unless such Parties agree to a different location, in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”) then in effect. The notice of arbitration shall specifically describe the claims, disputes or other matters in issue to be submitted to arbitration. The Buyer and Seller shall mutually select an independent arbitrator experienced in resolving commercial contract disputes. If such Parties are unable to agree upon an independent arbitrator within ten (10) days of the receipt of notice from the Party submitting the matter to arbitration, such Parties shall cause the AAA to submit to each Party a list of seven (7) qualified potential independent arbitrators. Each Party shall rank each arbitrator in order of its preference within ten (10) days after receipt of such list. The AAA shall appoint as the arbitrator the Person with the highest priority match between the two Parties; provided, however, that in the case of a tie, the arbitrator shall be selected by a coin toss. The discovery rights and procedures provided by the Federal Rules of Civil Procedure shall be available and enforceable in the arbitration proceeding. The written decision of the arbitrator so appointed shall be conclusive and binding on the Parties and enforceable by a court of competent jurisdiction. The expenses of the arbitration shall be borne equally by the Parties to the arbitration, provided, however, that each Party shall pay for and bear the cost of its own experts, evidence and legal counsel, unless the arbitrator rules otherwise in the arbitration. Both Parties agree to use reasonable efforts to cause a final decision to be rendered with respect to the matter submitted to arbitration within sixty (60) days after the final selection of the arbitrator. Any decision may include any remedy contemplated by this Agreement and any allocation of the fees and expenses of such arbitration deemed just and equitable by the arbitrator; provided, however, the arbitrator

 

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shall not be entitled to award incidental, exemplary, special, punitive or consequential damages. Nothing contained in this Section 11.18 shall limit either Party’s right to seek specific performance or other equitable relief.

11.19 Attorney-Client Privilege and Waiver of Conflicts.

(a) Each of the Parties acknowledges and agrees that the Seller has engaged Blank Rome LLP as legal counsel in connection with this Agreement and all matters related to any of the foregoing. Each Party agrees and acknowledges that such Party has had the opportunity to consult with such Party’s own attorneys and accountants, and each Party has carefully read and understands the scope and effect of the provisions of this Agreement and the other transaction documents. Blank Rome LLP has represented only the Seller, and Blank Rome LLP has not represented the interests of any of the Stockholders or the Buyer in connection with this Agreement, the other transaction documents, and all matters related to any of the foregoing, including all matters arising under this Agreement and the other transaction documents following the Closing. Blank Rome LLP shall owe no duties to any of the Stockholders or the Buyer. Each Party hereby (a) consents to the foregoing representation by Blank Rome LLP, (b) waives any conflicts of interest in connection therewith, (c) acknowledges that the Stockholders have had the opportunity to be or have been represented by independent counsel of the Stockholders’ own choosing, and (d) acknowledges that the Buyer has been represented by independent counsel of the Buyer’s own choosing.

(b) Each Party agrees that, notwithstanding any other provision of this Agreement, any other transaction document or any other agreement among any of the Parties, and notwithstanding the Closing and the post-Closing ownership and control of the Acquired Assets by the Buyer or its Affiliates, successor or assigns, the following provisions shall apply: (i) all communications of any nature at any time (and all records of such communications) among the Seller, the Stockholders, any employees of the Seller or any of their respective brokers, financial advisors, attorneys, accountants and other advisors, on the one hand, and Blank Rome LLP and its attorneys and employees, on the other hand, and all of Blank Rome LLP’s work product with respect to, relating to, or in connection with this Agreement, the other transaction documents, or the transactions contemplated hereby (individually and collectively, “Attorney-Client Communications”) shall at all times be subject to the attorney-client privilege or attorney work-product doctrine, as applicable, solely in favor of and held by the Seller, and shall be deemed to be confidential and proprietary information of the Seller; (ii) that such privilege or doctrine shall be held by, and may be waived only by, the Seller and its representatives, successors and assigns, and not by the Buyer or its Affiliates, successor or assigns; and (iii) that all Attorney-Client Communications, and all records, and copies or extracts of records, of or maintained by the Seller of or relating to Attorney-Client Communications in any form, including hard copy or in digital or electronic media, and all rights therein shall be irrevocably and completely retained by the Seller, may be removed by the Seller from the Acquired Assets, and the Buyer and its Affiliates, successors and assigns shall have no right or interest therein of any nature whatsoever including any access to or possession of such records or copies and any right to waive the attorney-client privilege or attorney work-product doctrine with respect to any Attorney-Client Communications. Further, each Party, on behalf of herself, himself or itself and each of their respective Affiliates, successors and assigns, (a) hereby expressly agrees to waive and release any present, past or future actual or potential conflict of interest that may result from Blank

 

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Rome LLP or its successors and assigns or any other attorney or employee of Blank Rome LLP, acting as general or special legal counsel to the Seller, prior to or at the Closing with respect to this Agreement, the other transaction documents or the transactions contemplated hereby, and all matters related to any of the foregoing, and acting as general or special legal counsel to the Seller, any of the Stockholders, or any member of his, her, its or their respective families and beneficiaries, and/or any of his, her, its or their respective Affiliates, successors and assigns, (i) prior to, at, and following the Closing with respect to this Agreement, the other transaction documents or the transactions contemplated hereby, and all matters related to any of the foregoing, including all matters arising under this Agreement and the other transaction documents or the transactions contemplated hereby following the Closing, and (ii) following the Closing with respect to any unrelated matters, and (b) expressly consent to any such legal representation by Blank Rome LLP or its successors and assigns or any other attorney or employee of Blank Rome LLP or its successors and assigns.

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above written.

 

 

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