STOCK PURCHASE AGREEMENT BY AND AMONG HOMELAND SECURITY CAPITAL CORPORATION, TIMIOS ACQUISITION CORP., TIMIOS, INC., AND DAL GROUP LLC MAY 27, 2011 TABLE OF CONTENTS

3.24       Insurance Coverage.  The Company and its Subsidiaries presently maintain, and have at all times prior to the date hereof maintained, liability, errors & omissions, casualty, property loss and other insurance coverages upon its properties and with respect to the conduct of its Business in such amounts, of such kinds and with such reputable insurance carriers as are generally deemed appropriate and sufficient for companies of a similar size engaged in similar types of business and operations.  Section 3.24 of the Company Disclosure Schedule sets forth a complete and correct list of all insurance policies maintained by the Company or any of its Subsidiaries and indicating for each policy the insurance company, type of coverage, annual premium and whether the terms of such policy provide for retrospective premium adjustments, together with a history of all claims made by the Company thereunder since January 1, 2005, which insurance, except as described on Section 3.24 of the Company Disclosure Schedule, will remain in full force and effect in accordance with policy terms, with respect to all events occurring prior to the Closing Date.  Section 3.24 of the Company Disclosure Schedule also states whether each such policy is carried on a “claims made” or “occurrence” basis.  Each of such policies are valid, outstanding and enforceable and there is no default with respect to any provision contained in any such policy, nor has there been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by the policy.  The Company or one of its Subsidiaries has paid all premiums due, and has otherwise performed all of its obligations, under each policy of insurance to which it is a party or that provides coverage to the Company or one of its Subsidiaries.  No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries has been refused any insurance, nor has its coverage been limited by any insurance carrier to which it has applied for insurance or with which it has carried insurance during the last five years.  The Company or any of its Subsidiaries have never maintained, established, sponsored, participated in or contributed to any self-insurance plan.  There are no outstanding claims under any such policy which have gone unpaid for more than thirty (30) days, or as to which the insurer has disclaimed liability.

 

3.25       Relationships with Affiliates and Related Persons.  Except as disclosed in Section 3.25 of the Company Disclosure Schedule, neither the Company, nor any of its Subsidiaries, nor the Seller nor any their respective Affiliates, shareholders, members, directors, officers, or managers has, or has had, any interest in any property (whether real, personal or mixed and whether tangible or intangible) used in or pertaining to the Company’s assets, properties, operations and the Business.  Neither the Company, nor any of its Subsidiaries, nor the Seller nor any of their respective Affiliates, shareholders, members, directors, officers, or managers owns, or has owned, of record or as a beneficial owner, an equity interest or any other financial or profit interest in any Person that has (a) had business dealings or a material financial interest in any transaction with the Company or any of its Subsidiaries other than business dealings or transactions disclosed in Section 3.25 of the Company Disclosure Schedule, each of which has been conducted in the Ordinary Course of Business with the Company or one of its Subsidiaries at substantially prevailing market prices and on substantially prevailing market terms or (b) engaged in competition with the Company or one of its Subsidiaries with respect to any line of the products or services of the Company or any of its Subsidiaries in any market presently served by the Company or any of its Subsidiaries.  Except as set forth in Section 3.25 of the Company Disclosure Schedule, neither the Company, nor any of its Subsidiaries nor the Seller nor any of their respective Affiliates, shareholders, members, directors, officers, or managers is a party to any Contract with, or has any claim or right against, the Company or any of its Subsidiaries.

 

 

3.26       Banks.  Section 3.26 of the Company Disclosure Schedule contains a complete and correct list of the names and locations of all banks in which the Company or any of its Subsidiaries has accounts or safe deposit boxes, and the names of all persons authorized to draw thereon or to have access thereto.

 

3.27       Foreign Corrupt Practices Act and International Trade Sanctions.  None of the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or any other person acting on its behalf has, directly or indirectly (i) used any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to a political activity, to government officials, candidates or members of political parties or organization, or established or maintained any unlawful or unrecorded funds in violation of Section 104 of the Foreign Corrupt Practices Act of 1977, as amended, or any similar applicable Law, (ii) paid, accepted or received any unlawful contributions, payments, expenditures or gifts, or (iii) violated or failed to comply with any export restrictions, anti-boycott regulations, embargo restrictions or other similar applicable Law.

 

3.28       Brokers and Finders.  Except as set forth on Section 3.28 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finders’ fees, and no broker or finder has acted directly or indirectly for the Company or any of its Subsidiaries in connection with this Agreement or the transactions contemplated herein.

 

3.29       Books and Records.  The books and records of the Company and its Subsidiaries delivered or made available to Buyer are complete and accurate in all material respects and reflect the assets, liabilities, prospects, business, financial condition and results of operations of the Company and its Subsidiaries and have been maintained in accordance with prudent business practices.

 

3.30       Disclosure.  No representation or warranty made under any provisions of this Agreement (including the exhibits and schedules hereto) nor any information furnished by the Seller in any other agreement, document, certificate, schedule, list or other writing furnished or to be furnished to Buyer pursuant hereto, contains or will contain when made any untrue statement of a material fact or omits or will omit when made to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which such statements are made, not misleading.  There is no fact known to the Seller or the Company which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect that has not been set forth in this Agreement or any Schedule hereto.

 

 

IV.  REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer and HSCC, jointly and severally, hereby represent and warrant to the Seller as of the date hereof and as of the Closing Date:

 

4.1         Organization.  Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation.  Buyer has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry out its business as and where now being conducted.

 

4.2         Authority and Enforceability.  Buyer has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and all other agreements and documents to be delivered by Buyer pursuant to the provisions of this Agreement (the “Buyer Documents”) have been duly authorized by all necessary company action on the part of Buyer and no other proceedings on the part of Buyer are necessary to authorize this Agreement or the Buyer Documents or to consummate the transactions contemplated hereby.  This Agreement has been, and at the Closing the Buyer Documents shall be, duly executed and delivered by Buyer and constitute, or shall constitute, the legal, valid and binding obligation of Buyer enforceable in accordance with their respective terms.

 

4.3         Third-Party Consents.  Except as set forth on Schedule 4.3, no consent, authorization or approval of, and no registration or filing with, any Person is required for the execution, delivery and performance of this Agreement and the Buyer Documents by Buyer and the consummation of the transactions contemplated hereby.

 

4.4         No Conflict or Violation.  Neither the execution and delivery of this Agreement or the Buyer Documents nor the consummation by Buyer of any of the transactions contemplated hereby do or will (with or without notice or lapse of time or both) (a) contravene, conflict with or result in a violation of any provision of the Organizational Documents of Buyer; (b) contravene or conflict with or result in a violation of any Law or any Governmental Order to which Buyer is subject; (c) contravene or conflict with or result in a violation of any of the terms or requirements of any License applicable to Buyer; or (d) contravene or conflict with, result in any breach of, constitute a default under, any material Contract to which Buyer is a party.

 

4.5         Investment Intent.  Buyer is acquiring the Shares for its own account for investment and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act.  Buyer understands that the Shares have not been registered under the Securities Act or any state securities laws and are being transferred to Buyer, in part, in reliance on the foregoing representation.

 

4.6         Brokers and Finders.  Buyer has not employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finders’ fees, and no broker or finder has acted directly or indirectly for Buyer in connection with this Agreement or the transactions contemplated herein.

 

 

V.  PRE-CLOSING COVENANTS

 

5.1         Access and Investigation.

 

(a)           Between the date of this Agreement and the Closing Date, and upon reasonable notice, the Company will, and the Seller will cause the Company, its Subsidiaries and its Representatives to, (a) afford Buyer and its Representatives (collectively, “Buyer Group”) full and free access, during regular business hours, to the Company’s and its Subsidiaries’ personnel, properties (including subsurface testing), Contracts, Licenses, books and records and other documents and data, such rights of access to be exercised in a manner that does not unreasonably interfere with the operations of the Company and its Subsidiaries; (b) furnish Buyer Group with copies of all such Contracts, Licenses, books and records and other documents and data as Buyer may reasonably request; (c) furnish Buyer Group with such additional financial, operating and other relevant data and information as Buyer may reasonably request; (d) provide reasonable access to the Significant Suppliers and Significant Customers of the Company and its Subsidiaries in a manner as shall be mutually agreeable between Buyer and the Company; (e) make available (i) all Representatives of the Company and its Subsidiaries for discussion of the Company’s businesses, properties or personnel and (ii) all Company Employees for discussion of the post-Closing employment arrangements with Buyer as the Buyer may reasonably request; and (f) otherwise cooperate and assist, to the extent reasonably requested by Buyer, with Buyer’s investigation of the properties, assets and financial condition related to the Company and its Subsidiaries. No investigation pursuant to this Section 5.1 or otherwise shall affect any representations, warranties, covenants or agreements of the Company or the Seller set forth herein.

 

(b)           Without limiting the generality of Section 5.1(a), prior to the Closing Date, the Company shall deliver to Buyer within fifteen (15) days after the last day of each calendar month, an unaudited balance sheet for the Company and its Subsidiaries as of the end of such month and the related statements of income and cash flow for the Company and its Subsidiaries for such monthly period, prepared by the Company and certified by the Company’s Chief Financial Officer (the “Pre-Closing Financial Statements”).  The Pre-Closing Financial Statements shall be prepared in accordance with the books and records of the Company and its Subsidiaries and fairly and accurately present the financial condition of the Company and its Subsidiaries as of the dates indicated and the results of operations of the Company and its Subsidiaries for the respective periods indicated, and shall be prepared in accordance with GAAP, except for the absence of complete footnote disclosure as required by GAAP, and subject to changes resulting from normal year-end audit adjustments, which adjustments shall not in any event be material.

 

5.2         Conduct of Business.

 

(a)           Except as otherwise contemplated by this Agreement, during the period from the date of this Agreement and continuing until the Closing Date, the Company shall and shall cause its Subsidiaries, and the Seller agrees to cause the Company and its Subsidiaries to operate the Business in the Ordinary Course of Business, and to use all commercially reasonable efforts to:

 

 

(i)           preserve the Business intact and conserve the goodwill related thereto;

 

(ii)          preserve intact the present business organization of the Company and its Subsidiaries and keep available the services of the Company and its Subsidiaries’ officers, agents and Company Employees;

 

(iii)         to maintain in effect the Material Contracts; and

 

(iv)         preserve present relationships with suppliers, customers, lenders and others having business dealings with them.

 

(b)           In connection with the foregoing, and without limiting the generality of this Section 5.2, between the date hereof and the Closing Date, the Company shall and shall cause its Subsidiaries, and the Seller shall cause the Company and its Subsidiaries to:

 

(i)           maintain the Company and its Subsidiaries’ assets (including offices, properties and equipment) in the Ordinary Course of Business in good operating order and condition, reasonable wear and tear excepted;

 

(ii)          continue to extend customers credit, collect Receivables and pay accounts payable and similar obligations and otherwise handle short-term assets and liabilities in the Ordinary Course of Business;

 

(iii)         maintain in full force and effect and in the same amounts policies of insurance comparable in amount and scope of coverage to that now maintained by or on behalf of the Company or its Subsidiaries;

 

(iv)         continue to maintain its books and records in accordance with GAAP;

 

(v)          maintain its Licenses and continue to actively pursue Licenses in process;

 

(vi)         continue its cash management practices in the Ordinary Course of Business;

 

(vii)        confer with Buyer prior to implementing operational decisions of a material nature; and

 

(viii)       otherwise report periodically to Buyer concerning the status of its Business, operations and finances.

 

(c)           Without the prior written consent of Buyer, neither the Company nor any of its Subsidiaries shall make or change any election, change any annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to the Company or any of its Subsidiaries, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company or any of its Subsidiaries, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of the Company or any of its Subsidiaries for any period ending after the Closing Date or decreasing any Tax attribute of the Company or any of its Subsidiaries existing on the Closing Date.

 

(d)           Without the prior written consent of Buyer, neither the Company nor any of its Subsidiaries shall fail to maintain in full force and effect all insurance currently in effect, hire or terminate any employee, consultant or independent contractor, change the compensation (including bonus or commission payments) payable or to become payable to its Company Employees, or grant any severance or termination pay or stock options to, or enter into or amend any Contract with any director, officer or employee of the Company, or establish, adopt, enter into or amend any bonus, compensation, stock or other equity option, deferred compensation, employment, termination, severance or other plan, agreement or arrangement for the benefit of any current or former Company Employee, or adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization.

 

(e)           Without the prior written consent of Buyer, and without limiting the generality of any other provision of this Agreement, the Company shall not and shall cause its Subsidiaries, and the Seller shall cause the Company and its Subsidiaries not to take any affirmative action, or fail to take any reasonable action within its control, as a result of which any of the changes or events listed in Section 3.9 would be likely to occur.

 

5.3         Consents and Approvals; Regulatory Filings.

 

(a)           The Company will, and the Seller will cause the Company and its Subsidiaries to, use all commercially reasonable efforts and make every good faith attempt to obtain, prior to the Closing Date, all Consents specified in Section 3.4 of the Disclosure Schedule.

 

(b)           Notwithstanding Section 5.3(a), the Parties understand and agree that the Seller and the Company will be required to file certain documents and obtain certain approvals in order to complete the transactions contemplated hereby, which filings and approvals include, without limitation, the filings with Governmental Authorities (and in each of the states) set forth on Schedule 5.3 in support of the Seller’s and the Company’s request for approval of a change in control of the Company and certain of its Subsidiaries (the “Filings”).  Each Party will furnish all information, including certificates, consents and opinions of experts, deemed reasonably necessary by the other Party for the preparation of the Filings.

 

(c)           Buyer shall use commercially reasonable efforts to cooperate with the Seller and the Company in providing information necessary to complete the Filings and in obtaining the approval of the transactions contemplated herein by the necessary Governmental Authorities in each of the states set forth on Schedule 5.3. Buyer, the Seller, the Company and its Subsidiaries each shall cooperate and coordinate with each other in taking such actions as may be required to obtain such approvals, including, without limitation, giving notice of any public hearing regarding this Agreement or the transaction contemplated hereby to any persons required by such Governmental Authorities in the manner prescribed by such Governmental Authorities and submitting such information as may be reasonably available pursuant to the requests by such Governmental Authorities.  The Seller will use commercially reasonable efforts to file or send notices to Governmental Authorities as soon as possible following the signing of this Agreement.

 

 

5.4         Commercially Reasonable Efforts.  Subject to the terms and conditions of this Agreement, each of the Parties shall use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or advisable to consummate the transactions provided for in this Agreement as soon as reasonably practicable.

 

5.5         Update Schedules.  The Company shall, and the Seller shall cause the Company to, promptly disclose to Buyer any information contained in its representations and warranties or the Schedules which, because of an event occurring after the date hereof, is incomplete or is no longer correct as of all times after the date hereof until the Closing Date; provided, however, that none of such disclosures shall be deemed to modify, amend or supplement the Disclosure Schedule for the purpose of determining the accuracy of any of the representations and warranties made by the Company and the Seller in this Agreement, including for purposes of Article II, Article III or Article VIII hereof, unless Buyer shall have consented thereto in writing.

 

5.6         Exclusivity.  The Company and the Seller grant to Buyer the exclusive right to acquire the Shares until the Final Termination Date.  The Company shall not and shall cause its Subsidiaries not to, and the Seller shall cause the Company and its Subsidiaries not to, directly or indirectly (a) solicit, initiate or encourage the submission of any proposal or offer from any Person relating to the acquisition of the Shares or any capital stock or other voting securities, or any substantial portion of the assets of, the Company or any of its Subsidiaries (including any acquisition structured as a merger, consolidation or share exchange) or (b) participate in any discussions or negotiations regarding, furnishing any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing.  The Seller will notify Buyer immediately if any Person makes any proposal, offer, inquiry or contact with respect to any of the foregoing and the Seller shall provide copies and disclose the terms thereof to Buyer, and shall immediately cease and cause to be terminated and shall use its reasonable best efforts to cause all Company/Seller Representatives to immediately terminate and cause to be terminated all existing discussions or negotiations with any such Persons.  Without limiting the foregoing, it is agreed that any violation of the restrictions set forth above by any Affiliate of the Company, its Subsidiaries or the Seller or any of their Representatives, whether or not such Person is purporting to act on behalf of the Company, any of its Subsidiaries or the Seller, shall be deemed to be a breach of this Section 5.6 by the Company, its Subsidiary or the Seller, as applicable.

 

5.7         Confidentiality.

 

(a)           The confidentiality agreement between DJSP Enterprises, Inc. and all of its Affiliates, on the one hand, and HSCC and all of its Affiliates, on the other hand, dated April 12, 2011 shall continue in effect until the Closing occurs.

 

(b)           From and after the Closing Date, the Seller shall hold, and shall cause its Representatives to hold, in confidence all confidential data or information with respect to the Company and its Business and all terms and conditions of this Agreement using the same standard of care to protect such confidential data or information or terms and conditions as it used to protect such confidential information prior to the Closing Date.

 

VI.  ADDITIONAL COVENANTS

 

6.1         Assistance in Proceedings.  The Company shall and shall cause its Subsidiaries to, and the Seller shall cause the Company and its Subsidiaries to, cooperate with Buyer and its Representatives in the contest or defense of, and make available its personnel and provide any testimony and access to its books and records in connection with, any Proceeding involving or relating to (a) any of the transactions contemplated by this Agreement or (b) any action, activity, circumstance, condition, conduct, event, fact, failure to act, incident, occurrence, plan, practice, situation, status or transaction on or before the Closing Date involving the Company, its Subsidiaries or its Business or the Seller.

 

6.2         Retention of and Access to Books and Records.  After the Closing Date, Buyer shall retain for a period consistent with Buyer’s record-retention policies and practices the books and records of the Company and its Subsidiaries.  Buyer shall provide the Seller and its Representatives reasonable access thereto, during normal business hours and on at least three days’ prior written notice, for any reasonable business purpose specified by the Seller in such notice, including, but not limited to, verification of the Final Working Capital, Working Capital adjustments, and Contingent Payment amounts, preparation of SEC filings or response to SEC requests, preparation of financial statements or tax returns, or dealing with tax audits. After the Closing Date, the Seller shall provide Buyer and its Representatives reasonable access to such books and records of the Seller relating to the Company, its Subsidiaries or the Business during normal business hours and on at least three days’ prior written notice, for any reasonable business purpose specified by Buyer in such notice.

 

6.3         Further Assurances.  After the Closing, without further consideration, the Company shall, and the Seller shall and shall cause its Subsidiaries to cause the Company and its Subsidiaries to, execute, acknowledge, and deliver any further deeds, assignments, conveyances, and other assurances, documents, and instruments of transfer, reasonably requested by Buyer, and shall take any other action consistent with the terms of this Agreement that may reasonably be requested by Buyer for the purpose of assigning, transferring and delivering the Shares to Buyer or to better enable Buyer to complete, perform or discharge any of the liabilities or obligations assumed by Buyer.  Each of the Parties will cooperate with the other and execute and deliver to the other parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other party hereto as necessary to carry out, evidence and confirm the intended purposes of this Agreement.

 

6.4         Press Releases.  Except as required by applicable law, the Seller and the Company shall not and the Company shall cause its Subsidiaries not to, (and each shall use commercially reasonable efforts to cause their respective Representatives not to), give notice to third parties or otherwise make any public statement or releases concerning this Agreement or the transactions contemplated hereby except for such written information as shall have been approved in writing as to form and content by Buyer.

 

 

6.5         Covenant Not to Compete; Non-Solicitation.

 

(a)           Solicitation of Work or Business. The Seller agrees that for a period commencing on the Closing Date and ending on the second anniversary of the Closing Date (the “Restricted Period”) it will not, directly or indirectly, own any interest in, manage, control, participate in, consult with, render services for, or in any other manner engage in any business that is competitive with the Business; provided, however, that the foregoing shall not prohibit the Seller or from the passive ownership (i.e., the Seller does not directly or indirectly participate in the business or management of the applicable entity) of less than 1% of the stock of a publicly-held company whose stock is traded on a national securities exchange.  The Seller agrees that this Section 6.5(a) is reasonable with respect to its duration, geographical area and scope.  In particular, the Seller acknowledges and agrees that the geographic scope of this restriction is necessary to protect the goodwill and confidential and proprietary information of the Company.

 

(b)           During the Restricted Period, the Seller agrees that it will not, directly or indirectly, (i) induce, encourage or solicit any customer, supplier, licensee, licensor, or other business relation of the Company to cease doing or reduce its business with the Company or (ii) in any way interfere with the relationship between any such customer, supplier, licensee, licensor or other business relation of the Company (including, but not limited to, making any negative or disparaging statements or communications about the Company).

 

(c)           During the Restricted Period, the Seller will not, and will cause its board of managers, officers, and key employees not to, directly or indirectly, induce, encourage or solicit any employee, independent contractor or agent of the Company, other than Stephen J. Bernstein, to leave the employ of the Company or sever its agency relationship with the Company and will not, and will cause its directors, officers, managers and key employees not to, directly or indirectly, employ any person who was an employee or agent of the Company at any time during the six (6) months preceding the first solicitation or hiring of such person.

 

(d)           Buyer and the Seller specifically acknowledge and agree that the remedy at Law for any breach of this Section 6.5 will be inadequate and Buyer, in addition to any other relief available to it, shall be entitled to seek temporary and permanent injunctive relief.

 

(e)           If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 6.5 is invalid or unenforceable, Buyer and the Seller agrees that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.

 

6.6         Waiver of Earnout Obligations; Distribution of Escrow Fund.  Prior to the Closing, the Seller and the Company shall, and shall cause the Seller’s Representative and any other applicable Buyer’s Indemnified Person (as each such terms are defined in the SPA) to, issue and deliver to the Escrow Agent (as such term is defined in the 2010 Escrow Agreement) in accordance with the 2010 Escrow Agreement, a joint instruction for distribution of the Escrow Fund (as such term is defined in the 2010 Escrow Agreement) to the former shareholders of the Company whose names and percentages of former share ownership of the Company are listed on Schedule 6.6 (the “Shareholders”) and shall terminate the 2010 Escrow Agreement in accordance with its terms.  In addition, the Shareholders whose percentage of former share ownership of the Company, in the aggregate, shall not be less than 87% of the Company (collectively, the “Designated Shareholders”), the Company and the Seller shall enter into an agreement, pursuant to which, among other things, the Designated Shareholders shall waive, in exchange for the receipt of their portion of the Escrow Fund, any right to receive any contingent payment under the SPA.

 

VII.  CONDITIONS TO CLOSING

 

7.1         Conditions to Obligation of Each Party.  The respective obligations of each party to effect the Closing shall be subject to the satisfaction at or prior to the Closing of the following conditions:

 

(a)           No Injunctions or Restraints; Illegality.  No temporary restraining order, preliminary or permanent injunction or other similar order (whether temporary, preliminary or permanent) issued by any court of competent jurisdiction or other legal restraint or prohibition shall be in effect which prevents the consummation of the transactions contemplated hereby, nor shall any Proceeding brought by any Governmental Authority seeking any of the foregoing be pending, and there shall not be any action taken, or any Law enacted, entered, enforced or deemed applicable to the transactions contemplated hereby, which makes the consummation of such transactions, as contemplated herein, illegal.

 

(b)           Governmental Approvals.  All approvals of, or declarations or filings with, any Governmental Authority necessary for the consummation of the transactions contemplated hereby, if any, shall have been obtained or made.

 

7.2         Conditions to Obligations of Buyer.  The obligations of Buyer to consummate the transactions provided for by this Agreement are subject, at the discretion of Buyer, to the satisfaction at or prior to the Closing of each of the following conditions:

 

(a)           The representations and warranties contained in Article II and Article III of this Agreement that are qualified by “materiality,” “Material Adverse Effect” or a similar qualifier shall be true and correct in all respects, and each of such representations and warranties that is not so qualified shall be true and correct in all material respects, in each case, as of the date hereof and as of the Closing Date as if originally made as of the Closing Date, except that those representations and warranties that are made as of a specific date shall be determined as of such date, and Buyer shall have received a certificate to such effect signed by the Seller and the Company.

 

(b)           All of the agreements and covenants that Seller and the Company are required to perform or comply with pursuant to this Agreement at or prior to the Closing Date shall have been performed or complied with in all material respects, and Buyer shall have received a certificate to such effect signed by the Seller and the Company.

 

(c)           Since the date of this Agreement, there shall not have occurred a Material Adverse Effect, or any events, changes, developments or effects which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and Buyer shall have received a certificate to such effect signed by the Seller and the Company.

 

(d)           Each of the Consents specified in Sections 2.3 of the Seller Disclosure Schedule and 3.4 of the Company Disclosure Schedule, and on Schedules 4.3 and 5.3 or otherwise necessary to permit the transactions contemplated by this Agreement shall have been obtained and shall be in full force and effect.

 

(e)           As of the Closing, each Post-Closing Employment Agreement delivered by the Designated Employees on the date hereof shall be in full force and effect and each Designated Employee shall have performed or complied with each obligation, agreement, and covenant to be performed or complied with by such Designated Employee thereunder on or prior to the Closing Date.

 

(f)            The Escrow Fund (as such term is defined in the 2010 Escrow Agreement) shall have been distributed to the Shareholders as contemplated by Section 6.6.

 

(g)           The 2010 Escrow Agreement shall have been terminated.

 

(h)           Resignations and releases executed by such of the managers, directors and officers of the Company and its Subsidiaries as are designated by Buyer shall have been delivered to Buyer in the form reasonably satisfactory to Buyer.

 

(i)            The Company shall have obtained and delivered to Buyer a written consent with respect to each of the Leases pursuant to which consent of the landlord or other party is required, and a waiver of landlord liens, collateral assignment of lease or leasehold mortgage from the landlord or other party whose consent thereto is required under each such Lease (the “Lease Consents”), in form and substance satisfactory to Buyer.

 

(j)            No action, suit or proceeding shall have been instituted by any Person which seeks to prohibit, restrict or delay consummation of the transactions contemplated herein or any of the conditions material to consummation of the transactions contemplated herein.

 

(k)           Dykema Gossett PLLC, counsel to the Seller and the Company, shall have delivered to Buyer a legal opinion in the form attached hereto as Exhibit A.

 

(l)            The Company shall have delivered to Buyer copies of waivers executed by the Designated Shareholders with respect to the earn-out under the SPA, as contemplated by Section 6.6.

 

(m)          The Company and each Subsidiary shall have delivered to Buyer a certificate of the Company’s or such Subsidiary’s Secretary, dated as of the Closing Date, in form and substance reasonably satisfactory to Buyer, certifying as to and attaching (if applicable): (i) its complete and accurate copies of the Organizational Documents, (ii) the incumbency of the officers executing this Agreement and (iii) complete and accurate copies of resolutions of the Board of Directors and the sole stockholder authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and the acts of the officers of the Company in carrying out the terms and provisions hereof and thereof.

 

 

(n)           The Company and each Subsidiary shall have delivered to Buyer a certificate of legal existence and corporate good standing from the Secretary of State of its jurisdiction of incorporation and any jurisdiction where it is qualified to do business, which certificates shall be dated no more than three (3) Business Days prior to the Closing Date.

 

(o)           The Seller shall have delivered to Buyer a duly executed and acknowledged certificate, in form and substance acceptable to Buyer and in compliance with the Code and Treasury Regulations, certifying such facts as to establish that the sale of the Shares are exempt from withholding under Section 1445 of the Code.

 

(p)           The Seller and each Affiliate of the Company shall have executed and delivered to Buyer a general release in favor of Buyer and its Affiliates in the form attached hereto as Exhibit B, which shall include, among other things, a release of any claims the Seller or its Affiliates may have against the Company under the SPA (each, a “General Release”).

 

(q)           The signatories to the bank accounts of the Company shall have been changed to Buyer’s satisfaction.

 

(r)           The Seller and the Company shall have delivered to Buyer written consents to the transactions contemplated by this Agreement  from the Seller’s creditors listed on Schedule 7.2(r) in the form and substance reasonably satisfactory to Buyer.

 

(s)           The Seller and the Company shall have delivered to Buyer the Escrow Agreement duly executed by the Seller, the Company and the Escrow Agent.

 

(t)            All Liens on any of the assets of the Company shall have been fully released and discharged pursuant to such documents in form and substance reasonably satisfactory to Buyer, and the Seller or the Company shall have made all necessary filings and taken all other action necessary to effect such releases and discharges including, without limitation, filing all necessary UCC termination statements in all applicable jurisdictions.

 

(u)           Buyer shall have received from the Seller audited consolidated financial statements (“Audited Financial Statements”) of the Company and its Subsidiaries for all years required to be included in a Form 8-K to be filed by HSCC as a result of consummation of this Agreement, with such Audited Financial Statements to be prepared in accordance with GAAP, consistently applied throughout the periods, and with the report of the Company’s auditor and consent in connection therewith to be unqualified.

 

(v)           Any intercompany indebtedness, including any payments due by the Company to the Seller for services rendered by the Seller or its Affiliates prior to the Closing Date, shall be paid in full or otherwise discharged prior to the Closing.

 

(w)           The Seller and Default Servicing, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Seller (“Default”) shall have entered into, and consummated the transactions contemplated by, an asset purchase agreement by and among HSCC or its Affiliate, the Seller and Default (the “Asset Purchase Agreement”), pursuant to which HSCC or such Affiliate shall purchase substantially all of the assets of Default.

 

(x)           The Company shall have been released as a guarantor of any and all Company Indebtedness or Indebtedness of the Seller or any of its Affiliates, including, without limitation, as a guarantor under the Bank of America Agreements.

 

(y)           The Seller and the Company shall have delivered to Buyer such other instruments, certificates, documents or materials as may be reasonably requested by Buyer in connection with the consummation of the transactions contemplated hereby.

 

7.3         Conditions to Obligations of Seller.  The obligations of the Seller to consummate the transactions provided for by this Agreement are subject, in the discretion of the Seller, to the satisfaction at or prior to the Closing Date of each of the following conditions:

 

(a)           The representations and warranties of Buyer contained in this Agreement shall have been true and correct on and as of the date hereof and shall be true and correct on and as of the Closing Date as if originally made on and as of the Closing Date, except that those representations and warranties that are made as of a specific date shall be determined as of such date, and the Seller shall have received a certificate to such effect signed by Buyer.

 

(b)           All of the agreements and covenants that Buyer is required to perform or comply with pursuant to this Agreement at or prior to the Closing Date shall have been performed or complied with in all material respects, and the Seller shall have received a certificate to such effect signed by the Chief Executive Officer of the Buyer.

 

(c)           Buyer shall have delivered to the Seller and the Company the Escrow Agreement duly executed by the Buyer and the Escrow Agent.

 

(d)           HSCC and Buyer shall have delivered to the Seller a certificate of HSCC’s or Buyer’s Secretary, dated as of the Closing Date, in form and substance reasonably satisfactory to the Seller, certifying as to and attaching (if applicable): (i) its complete and accurate copies of the Organizational Documents, (ii) the incumbency of the officers executing this Agreement and (iii) complete and accurate copies of resolutions of the Board of Directors and the sole stockholder authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and the acts of the officers of the Company in carrying out the terms and provisions hereof and thereof.

 

(e)           HSCC and Buyer shall have delivered to the Seller a certificate of legal existence and corporate good standing from the Secretary of State of its jurisdiction of incorporation and any jurisdiction where it is qualified to do business, which certificates shall be dated no more than three (3) Business Days prior to the Closing Date.

 

(f)           No action, suit or proceeding shall have been instituted by any Person which seeks to prohibit, restrict or delay consummation of the transactions contemplated herein or any of the conditions material to consummation of the transactions contemplated herein.

 

 

(g)           The transactions contemplated by the Asset Purchase Agreement shall have been consummated on or before a date set by the Seller by written notice to HSCC and Buyer not earlier than June 30, 2011, unless HSCC and Buyer waive the condition set forth in Section 7.2(w) by written notice to the Seller within five (5) Business Days after the Seller’s notice.

 

(h)           HSCC and Buyer shall have delivered to the Seller and the Company such other instruments, certificates, documents or materials as may be reasonably requested by the Seller and the Company in connection with the consummation of the transactions contemplated hereby.

 

VIII.  INDEMNIFICATION

 

8.1         Indemnification by Seller.  From and after the Closing, the Seller shall indemnify and hold harmless Buyer, the Company, its Subsidiaries, their successors and assigns, and their officers, directors, employees, agents and Affiliates (“Buyer’s Indemnified Persons”), and prior to Closing, the Company and its Subsidiaries, jointly and severally with the Seller, shall indemnify and hold harmless Buyer and its officers, directors, employees, agents and Affiliates, from and against, and shall reimburse such Persons for, any and all losses, liabilities, damages, demands, deficiencies, judgments, assessments, taxes, sanctions, levies, fines, penalties, costs, interest and Legal Expenses (collectively, “Losses”), whether or not involving a third-party claim, arising out of, based upon or in any way relating to:

 

(a)           any misrepresentation in, inaccuracy or breach of any representation or warranty of the Seller or the Company set forth in this Agreement or the Schedules, or in any certificate, transfer instrument, document, writing, or other instrument delivered by the Seller or the Company pursuant to this Agreement (disregarding, for purposes hereof, any materiality standards, including any Material Adverse Effect standards set forth herein or therein);

 

(b)           any breach or nonfulfillment of any covenant, agreement or other obligation of the Seller or the Company in this Agreement or in any certificate, document, writing or instrument delivered by the Seller or the Company pursuant to this Agreement;

 

(c)           any claim or Liability related to (i) title and escrow claims, in which the material facts underlying such claim occurred prior to the Closing Date or (ii) any breach of an obligation, whether contractual or otherwise, that occurred prior to the Closing Date, except with respect to obligations occurring prior to the Closing Date which, by their terms, are to be performed on or after the Closing Date;

 

(d)           any claim or Liability arising from or relating to products sold or services performed by the Company on or before the Closing Date;

 

(e)           any claim or Liability to any current or former stockholder or other security holder of the Company which arises out of or is based upon any matter, event, dispute, fact or circumstance that existed on or prior to the Closing Date (other than Liabilities to the Seller arising from the transactions contemplated by this Agreement);

 

 

(f)           any obligation, claim or Liability arising from or related to claims under Employee Plans which have been incurred but not reported as of the Closing Date;

 

(g)           any obligation, claim or Liability arising from or related to the Company’s failure to comply with any law applicable to any Employee Plan on or before the Closing Date;

 

(h)           any Pre-Closing Tax Liabilities;

 

(i)            any Company Indebtedness or transaction expenses of the Company or the Seller not satisfied prior to the Closing;

 

(j)            any claim or Liability related to the SPA;

 

(k)           any claim or Liability related to the 2010 Escrow Agreement;

 

(l)            any claim related to avoiding or otherwise challenging any of the transactions contemplated by this Agreement; and

 

(m)          enforcement of this Section 8.1.

 

8.2         Indemnification by Buyer.  Buyer and HSCC, jointly and severally, shall indemnify and hold harmless the Seller (“Seller’s Indemnified Persons”) from and against, and shall reimburse the Seller for, any and all Losses arising out of, based upon or in any way relating to:

 

(a)           any misrepresentation in, inaccuracy or breach of any representation or warranty of Buyer set forth in this Agreement or in any certificate, transfer instrument, document, writing, or other instrument delivered by Buyer pursuant to this Agreement;

 

(b)           any breach or nonfulfillment of any covenant, agreement or other obligation of Buyer in this Agreement or in any certificate, document, writing or instrument delivered by Buyer pursuant to this Agreement;

 

(c)           any claims by third parties to the extent caused by the acts or omissions of the Company, its Subsidiaries or Buyer after the Closing Date, including claims for Losses which arise out of Buyer’s operation of the Business or by virtue of Buyer’s ownership of the Company after the Closing Date; provided, however that Buyer shall not have any liability under this Section 8.2(c) to the extent that any action or omission giving rise to any such Loss commenced prior to the Closing and continued following the Closing; and

 

(d)           enforcement of this Section 8.2.

 

8.3         Indemnification Process; Defense of Third-Party Claims.

 

(a)           If any legal proceedings shall be instituted or any claim is asserted by any third party in respect of which any party hereto may have an obligation to indemnify another party, the party asserting such right to indemnity (the “Indemnified Party”) shall give the party from whom indemnity is sought (the “Indemnifying Party”) written notice thereof, but any failure to so notify the Indemnifying Party shall not relieve it from any liability that it may have to the Indemnified Party other than to the extent the Indemnifying Party is actually prejudiced thereby.

 

 

(b)           The Indemnified Party may defend any third party claim with counsel of its own choosing, and shall act in a commercially reasonable manner and in accordance with its good faith business judgment in handling such third party claim.  All costs (including attorneys’ fees) incurred by the Indemnified Party in defending such third party claim shall be at the cost and expense of the Indemnifying Party, and the Indemnifying Party will promptly reimburse the Indemnified Party therefor in accordance with this Section 8.3.  The Indemnifying Party shall have the right, at its option and expense, to participate in the defense of such proceeding or claim, but not to control the defense, negotiation or settlement thereof, which control shall at all times rest with the Indemnified Party.  Notwithstanding the two preceding sentences, if the Indemnifying Party (i) admits in writing its liability to the Indemnified Party hereunder with respect to such proceeding or claim; and (ii) furnishes evidence of its financial ability to indemnify the Indemnified Party reasonably satisfactory to the Indemnified Party, the Indemnifying Party may assume control of the defense at its expense through counsel reasonably satisfactory to such Indemnified Party; provided, however, that:

 

(i)           the Indemnified Party shall be entitled to participate in the defense of such claim and to employ counsel at its own expense to assist in the handling of such claim; provided, however, that the employment of such counsel shall be at the expense of the Indemnifying Party if the Indemnified Party determines in good faith that such participation is appropriate in light of defenses not available to the Indemnifying Party, conflicts of interest or other similar circumstances;

 

(ii)          no Indemnifying Party shall consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by each claimant or plaintiff to each Indemnified Party of a release from all liability in respect of such claim; and

 

(iii)         the Indemnifying Party shall not be entitled to control (but shall be entitled to participate at its own expense in the defense of), and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of (A) any claim to the extent the claim seeks an order, injunction, non-monetary or other equitable relief against the Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party or (B) any claim relating to Taxes.

 

(c)           If the Indemnified Party elects not to defend such third party claim, the Indemnified Party shall promptly provide notice to the Indemnifying Party.  After written notice by the Indemnifying Party to the Indemnified Party of its assumption of control of the defense of any such action pursuant to this Section 8.3, the Indemnifying Party shall not be liable to such Indemnified Party hereunder for any Legal Expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation and of liaison counsel for the Indemnified Party; provided, however, that the Indemnifying Party shall be liable for such Legal Expenses if the Indemnified Party determines in good faith that the incurrence of the same is appropriate in light of defenses not available to the Indemnifying Party, conflicts of interest or other similar circumstances.  If the Indemnifying Party does not assume control of the defense of such claim as provided in this Section 8.3, the Indemnified Party shall have the right to defend such claim in such manner as it may deem appropriate at the cost and expense of the Indemnifying Party, and the Indemnifying Party will promptly reimburse the Indemnified Party therefor in accordance with this Section 8.3.  The reimbursement of fees, costs and expenses required by this Section 8.3 shall be made by periodic payments during the course of the investigations or defense, as and when bills are received or expenses incurred.

 

(d)           The Indemnified Party shall obtain the prior written approval of the Indemnifying Party before entering into any settlement of a third party claim or ceasing to defend against such claim (with such approval not to be unreasonably withheld or conditioned).

 

(e)           The Indemnifying Party and the Indemnified Party shall make available to each other and their counsel and accountants all books and records and information relating to any third party claims, keep each other apprised as to the details and progress of all proceedings relating thereto and render to each other such assistance as may be reasonably required to ensure the proper and adequate defense of any and all third party claims.

 

8.4          Other Claims.  A claim for indemnification for any matter not involving a third-party claim shall be asserted by the Indemnified Party to the Indemnifying Party in writing, setting forth specifically the obligation with respect to which the claim is made, the facts giving rise to and the alleged basis for such claim and, if known or reasonably ascertainable, the amount of the liability asserted or which may be asserted by reason thereof, but any failure to so notify the Indemnifying Party shall not relieve it from any liability that it may have to the Indemnified Party other than to the extent the Indemnifying Party is actually prejudiced thereby.

 

8.5          Survival.  Subject to the time limitations of this Section 8.5, all representations, warranties, covenants and obligations contained in this Agreement and in any certificate, document, writing or instrument delivered pursuant to this Agreement shall survive the Closing and the consummation of the transactions contemplated by this Agreement.  The representations and warranties of each party contained in this Agreement shall survive the Closing for a period of twelve (12) months following the Closing Date; provided, however, that (i) the representations and warranties set forth in Sections 2.1 (Authority and Enforceability), 2.4 (Ownership of Shares), 2.5 (No Bankruptcy) and 2.6 (Acknowledgement), and in Sections 3.1 (Organization), 3.3 (Subsidiaries), 3.6 (Capitalization), 3.25 (Relationships with Affiliates and Related Persons), and 3.28 (Brokers and Finders) shall survive indefinitely, (ii) the representations and warranties set forth in Section 3.16 (Employee Benefit Plans) and Section 3.19 (Tax Returns and Taxes), shall survive until 60 days after the running of the applicable statute of limitations with respect to the taxable period to which the particular claim relates, and (iii) the representations and warranties set forth in Sections 3.20 (Licenses) and 3.23 (Compliance with Laws) shall survive for the length of the applicable statute of limitations.  Any claim for indemnity under Sections 8.1(a) or 8.2(a) shall be asserted in writing within the foregoing time periods, except for claims arising as a result of fraud, willful breach, willful or intentional misrepresentation or omission of a material fact in connection with this Agreement, or criminal liability, as to which the limitations of this Section 8.5 shall not apply.  For convenience of reference, the date upon which any representation or warranty shall terminate is referred to herein as the “Survival Date.”  The right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant or obligation.

 

 

8.6          Indemnification Limitations.

 

(a)           Except for Losses relating to breaches of Sections 2.1, 2.4, 2.5, 2.6, 3.1, 3.3, 3.6, 3.16, 3.19, 3.20, 3.23, 3.25, and 3.28, Losses arising as a result of fraud, willful breach, willful or intentional misrepresentation or omission of a material fact in connection with this Agreement or criminal liability, and Losses relating to Sections 8.1(e), 8.1(j), 8.1(k) or 8.1(l), as to all of which the limitations of this Section 8.6 shall not apply, (i) Buyer’s Indemnified Persons may not assert any claim for Losses under Section 8.1(a) until the aggregate amount of such claims under this Agreement exceed $25,000 (the “Basket”), whereupon (subject to Section 8.6(a)(ii) below) Buyer’s Indemnified Persons shall be entitled to receive the amount of all Losses, including the Basket; and (ii) in no event shall the aggregate liability of the Seller for claims of Losses under Section 8.1 or otherwise exceed the amount equal to the Remaining Payments (the “Cap”); provided, however, that the Seller’s aggregate liability for claims of Losses under Section 8.1(a) shall not exceed $250,000 (the “Mini Cap”).

 

(b)           Seller’s Indemnified Persons may not assert any claim for Losses under Section 8.2(a), except for Losses relating to breaches of Sections 4.1, 4.2 or 4.5 and Losses arising as a result of fraud, willful breach, willful or intentional misrepresentation or omission of a material fact in connection with this Agreement, or criminal liability, as to which the limitations of this Section 8.6 shall not apply, until the aggregate amount of such claims under Section 8.2(a) exceed the Basket, whereupon Seller’s Indemnified Persons shall be entitled to receive the amount of all Losses, including the Basket, and in no event shall the aggregate liability of Buyer for claims of Losses under Section 8.2 exceed the amount equal to the Closing Payment plus the Remaining Payments (except that Buyer’s aggregate liability for claims of Losses under Section 8.2 shall be reduced by the Mini Cap on the first anniversary of the Closing Date, except with respect to claims made by Seller’s Indemnified Parties under Section 8.2(a) on or before the first anniversary of the Closing Date in accordance with the terms of this Agreement, which shall survive and be subject to the Mini Cap until such time as such claim or claims have been resolved); provided, however, that Buyer’s aggregate liability for claims for Losses under Section 8.2(a) shall not exceed the Mini Cap.

 

(c)           Notwithstanding the foregoing, neither Party may assert a claim for Losses under this Article VIII unless such claim, individually, exceeds $1,000.

 

8.7          Right of Setoff.  Subject to the right of Buyer to seek specific performance and injunctive relief to enforce the terms of any covenants herein, the Buyer shall satisfy any Losses which a Buyer’s Indemnified Party is entitled to recover, pursuant to this Agreement or otherwise, solely by setting off, recovering from, or collecting from (i) any Positive Working Capital Adjustment Amount that would otherwise be payable to the Seller pursuant to Section 1.5, and (ii) any Contingent Payment that is payable or that becomes payable to the Seller pursuant to Section 1.6 (including any Contingent Payments or escrow funds placed with the Escrow Agent pursuant to the terms of the Escrow Agreement, whether held by the Escrow Agent or deposited by the Escrow Agent with a court or other party in connection with the resolution of any dispute relating to those payments) (the “Remaining Payments”).

 

 

8.8          Exclusive Remedy.  Except for claims of fraud, willful breach, willful or intentional misrepresentation or omission of a material fact in connection with this Agreement, or criminal liability, the parties hereby acknowledge and agree that from and after the Closing, subject to the right of Buyer to seek specific performance and injunctive relief to enforce the terms of any covenants herein, the exclusive remedy of the parties hereto with respect to any and all claims arising in connection with or relating to the transactions contemplated under this Agreement shall be pursuant to the provisions set forth in this Article VIII.

 

8.9          Characterization of Payments.  The Parties agree that any payment pursuant to an indemnification obligation under this Article VIII shall be treated for Tax purposes as an adjustment to the Purchase Price.

 

8.10       Calculation of Losses.  Subject to the other provisions of this Article VIII:

 

(a)           Each Indemnified Party shall use commercially reasonable efforts to mitigate Losses, including seeking recovery under insurance policies and from third parties.  Any insurance proceeds or recoveries from Third Parties received by an indemnified party with respect to any Losses shall reduce, on a dollar-for-dollar basis, the amount payable to such Indemnified Party under the indemnification provisions of this Article VIII.

 

(b)           Neither the Seller nor the Company shall be required to make indemnification payment pursuant to this Article VIII for any Loss reflected in the calculation of the Working Capital.

 

IX.  TERMINATION

 

9.1          Termination.  This Agreement may be terminated at any time prior to Closing:

 

(a)           by mutual consent of Buyer and the Seller;

 

(b)           by either Buyer or the Seller if there has been a material breach of any representation or warranty, or breach or non-performance in any material respect of a covenant or agreement on the part of the other party set forth in this Agreement, which breach or failure to perform would render unsatisfied any condition contained in Section 7.2 or 7.3, as applicable, and is incapable of being cured, or, if capable of being cured, has not been cured by the breaching party within ten days after the non-breaching party has notified the breaching party;

 

(c)           by either Buyer or the Seller at any time after July 30, 2011 (the “Final Termination Date”), provided that if the Closing shall not have occurred by the Final Termination Date as the result of a breach of this Agreement, then any party responsible for such breach may not avail itself of the right under this Section 9.1, and provided further, that in any such event, the non-breaching party(ies) shall not be deprived of any remedy hereunder or at law against the breaching party, and provided further, that if the only condition precedent not met as of the Final Termination Date is that the Parties have not received all of the approvals of Governmental Authorities set forth on Schedule 5.3, then either Buyer or the Seller may extend the Final Termination Date to up to three (3) months after the date of this Agreement; or

 

 

(d)           by either Buyer or the Seller if a court of competent jurisdiction or Governmental Authority shall have issued an order, decree or ruling or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable.

 

(e)           unless HSCC and Buyer shall have waived the condition contained in Section 7.2(w), by the Seller in the event the transactions contemplated by the Asset Purchase Agreement shall not have been consummated prior to the date set by the Seller in the written notice contemplated in Section 7.3(g).

 

9.2          Effect of Termination.  In the event of termination of this Agreement pursuant to Section 9.1, this Agreement shall forthwith terminate and become void, and there shall be no liability on the part of any party hereto to any other and all rights and obligations of any party hereto will cease, except that (a) this Section 9.2 and Article XI shall survive any such termination and (b) nothing herein shall relieve any party from liability for any breach of this Agreement prior to the termination hereof.

 

 

X.  TAXES

 

10.1        Transfer Taxes.  All sales, use and transfer taxes, including any value added, stock transfer, gross receipts, stamp duty and real, personal, or intangible property transfer taxes, due by reason of the consummation of the purchase of the Shares hereunder (collectively, the “Transfer Taxes”), including any interest or penalties in respect thereof, shall be borne by the Seller.  The Seller and Buyer shall cooperate with each other and use their commercially reasonable efforts to minimize the transfer taxes attributable to the transfer of the Shares.

 

10.2        Cooperation on Tax Matters.

 

(a)           The Seller and Buyer agree to cooperate, and shall cause their respective Affiliates, officers, employees, agents, auditors and representatives to cooperate, and to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information (including access to books and records) and assistance relating to the Company and its Subsidiaries as is reasonably necessary for the filing of any Tax Return, the preparation for any Tax audit, the prosecution or defense of any claim, suit or proceeding relating to any proposed Tax adjustment for which the Seller or Buyer retains liability under Article VIII or this Article X.  Buyer and the Seller shall keep all such information and documents received by them confidential unless otherwise required by Law.

 

(b)           Buyer and the Seller agree to retain or cause to be retained all books and records pertinent to the Company and its Subsidiaries until the applicable period for assessment of Taxes under applicable Law (giving effect to any and all extensions or waivers) has expired, and such additional period as necessary for any administrative or judicial proceedings relating to any proposed assessment, and to abide by and cause the Company and its Subsidiaries to abide by all record retention agreements entered into with any Governmental Authority with respect to Tax Matters.  The Seller and Buyer agree to give the other reasonable notice prior to transferring, discarding or destroying any such books and records relating to Tax matters and, if so requested, the Seller and Buyer shall allow the requesting party to take possession of such books and records.

 

(c)           Buyer and the Seller shall cooperate with each other in the conduct of any audit or other proceedings for any Tax purposes and they shall each execute and deliver such powers of attorney and other documents as are reasonably necessary to carry out the intent of this Agreement; provided, however, that Buyer shall control the audit of any of the Company’s Tax Returns.

 

10.3        Tax Returns.  Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company and its Subsidiaries that are filed after the Closing Date. For any Tax Returns that apply to periods prior to the Closing Date, Buyer shall provide a copy of such Tax Returns to the Seller for review at least fifteen (15) days prior to the date on which Tax Returns will be filed.  Any dispute over the Tax Returns arising between the Seller and Buyer shall be submitted to a tax accountant chosen by the Seller for determination in accordance with this Agreement.

 

10.4        Tax-Sharing Agreements.  All tax-sharing agreements or similar agreements with respect to or involving the Company and its Subsidiaries shall be terminated as of the Closing Date and, after the Closing Date, the Company and its Subsidiaries shall not be bound thereby or have any liability thereunder.

 

XI.  OTHER PROVISIONS

 

11.1        Waiver of Jury Trial.  EACH OF THE PARTIES HERETO WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR ACTION OF ANY PARTY HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  THE PARTIES HERETO EACH HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES HERETO MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

11.2        Appendices, Annexes, Exhibits and Schedules.  All Recitals, Appendices, Annexes, Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement.

 

 

11.3        Amendment.  This Agreement and the Appendices, Exhibits and Schedules hereto may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

 

11.4        No Waiver.  No failure of any party to this Agreement to exercise any power or right given it under this Agreement, or to insist upon strict compliance with any provision of this Agreement, and no custom or practice at variance with the terms of this Agreement shall constitute a waiver any such party’s right to demand strict compliance with the terms of this Agreement.

 

11.5        Entire Agreement.  This Agreement, together with the Appendices, Exhibits and Schedules hereto, constitutes the entire Agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties.

 

11.6        Governing Law.  This Agreement shall be governed by, construed, interpreted and the rights of the parties determined in accordance with the laws of the State of Delaware (regardless of the laws that might be applicable under principles of conflicts of law).

 

11.7        Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given (a) on the day of service if served personally on the party to whom notice is given, (b) on the date of receipt if delivered by telecopy or nationally recognized overnight courier, or (c) on the third (3rd) Business Day after deposit in the U.S. mail if mailed to the party to whom notice is given by registered or certified mail, postage prepaid, return receipt requested and properly addressed as follows:

 

If to Buyer or the Company, addressed to:

Homeland Security Capital Corporation

1005 North Glebe Road, Suite 550

Arlington, VA 22201

Attention:        C. Thomas McMillen

Facsimile:         ###-###-####

 

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

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

666 Third Avenue 

New York, NY 10017

Attention:        Kenneth R. Koch

Facsimile:         ###-###-####

 

If to the Seller, addressed to:

 

DAL Group, LLC

950 South Pine Island Road

Plantation, Florida 33324

Attention:        Stephen J. Bernstein, President and CEO

Facsimile:         ###-###-####

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

 

Dykema Gossett PLLC

400 Renaissance Center

Detroit, Michigan 48243

Attention:         Thomas S. Vaughn

Facsimile:          ###-###-####

 

or to such other place and with such other copies as either party may designate as to itself by written notice to the others.

 

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

 

11.9        Specific Performance.  The Parties agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof any that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof, without bond or other security required, in addition to any other remedy to which they are entitled at law or in equity.

 

11.10     Expenses.  Regardless of whether the transactions contemplated hereby are consummated, each party hereto shall pay its or their own costs and expenses, including legal, accounting, consulting and other professional fees, incurred in connection with the negotiation, preparation, investigation, and performance by such party of this Agreement and the transactions contemplated hereunder.  For the avoidance of doubt, the Seller shall be pay all of the Company’s costs and expenses, including legal, accounting, consulting and other professional fees, incurred in connection with the negotiation, preparation, investigation, and performance by such party of this Agreement and the transactions contemplated hereunder.

 

11.11     Enforcement.  In the event any party resorts to legal action to enforce or interpret any provision of this Agreement, the prevailing party will be entitled to recover the costs and expenses of such action so incurred, including reasonable attorney’s fees, from any party that opposes the prevailing party in such legal action.

 

11.12     Construction.

 

(a)          The parties acknowledge that they have participated jointly in the negotiation and drafting of the terms of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

 

(b)          Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms “include” and “including”, and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation”, and (v) the terms “Article” or “Section” refer to the specified Article or Section of this Agreement.

 

 

11.13     Successors and Assigns; No Third Party Beneficiaries.  No party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other parties, except that Buyer may assign any of its rights and delegate any of its obligations under this Agreement to any Subsidiary of Buyer; provided, however, that HSCC and Buyer shall remain liable to Seller for any payments due under this Agreement.  Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section 11.13.  This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.

 

 

11.15     Definitions.  Capitalized terms used herein and not otherwise defined herein have the meanings set forth in Appendix A attached hereto.

 

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

 

	Homeland Security Capital Corporation
		/s/ C. Thomas McMillen
	By:	C. Thomas McMillen
	Its:	CEO

	Timios Acquisition Corp.
		/s/ C. Thomas McMillen
	By:	C. Thomas McMillen
	Its:	CEO

	Timios, Inc.
		/s/ Stephen J. Bernstein
	By:	Stephen J. Bernstein
	Its:	Vice President

	DAL Group, LLC
		/s/ Stephen J. Bernstein
	By:	Stephen J. Bernstein
	Its:	President and CEO

 

Signature Page to Timios Stock Purchase Agreement

 

 

For purposes of this Agreement, the following terms shall have the meanings specified or referred to in this Appendix A:

 

 

“2010 Escrow Agreement” means that certain Escrow Agreement by and among the Seller, the Shareholders and U.S. Bank National Association dated as of July 26, 2010.

 

“Affiliate” means, with respect to any specified Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified.  With respect to any natural person, the term Affiliate shall also include any member of such person’s immediate family, any family limited partnership or similar entity for such person and any trust, voting or otherwise, of which such person is a trustee or of which such person or any of such person’s immediate family is a beneficiary.  With respect to any trust, the term Affiliate shall also include the beneficiary or trustee of such trust.  For purposes of the foregoing, the term “control” and variations thereof means the possession of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by Contract or otherwise.

 

“Agreement” is defined in the Preamble.

 

“Asset Purchase Agreement” is defined in Section 7.2(w).

 

“Audited Financial Statements” is defined in Section 7.2(u).

 

“Bank of America Agreements” means (1) the Loan Agreement, dated as of March 18, 2010, by and between Seller and BA Note Acquisition LLC (as successor in interest of Bank of America, N.A.), (2) Undated General Subordination and Assignment (Continuing and Unconditional) between BA Note Acquisition LLC (as successor in interest of Bank of America, N.A.) and certain creditors of the Seller, (3) Undated Continuing and Unconditional Guaranty by the Company in favor of BA Note Acquisition LLC (as successor in interest of Bank of America, N.A.), (4) Undated Security Agreement (Multiple Use) between BA Note Acquisition LLC (as successor in interest of Bank of America, N.A.) and the Company, and (5) Master Loan and Security Agreement Number 21087-70000 dated May 19, 2010, by and between Seller and Banc of America Leasing & Capital, LLC, and all documents ancillary thereto.

 

“Basket” is defined in Section 8.6(a).

 

“Business” is defined in the Recitals.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on which banks are required or authorized by Law to be closed in New York City.

 

“Buyer” is defined in the Preamble.

 

“Buyer Documents” is defined in Section 4.2.

 

 

“Buyer Group” is defined in Section 5.1(a).

 

“Buyer’s Indemnified Persons” is defined in Section 8.1.

 

“Cap” is defined in Section 8.6(a).

 

“Closing” is defined in Section 1.2.

 

“Closing Date” is defined in Section 1.2.

 

“Closing Payment” means the sum of $1,150,000.

 

“COBRA” means the Consolidated Omnibus Budget Reconciliation Act.

 

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

 

“Company” is defined in the Recitals.

 

“Company Assets” is defined in Section 3.11.

 

“Company Disclosure Schedule” is defined in Article III.

 

“Company Employee” is defined in Section 3.15(a).

 

“Company Indebtedness” means the Indebtedness of the Company evidenced by notes, debentures, bonds or other similar instruments which in each case shall include the current and long-term portion of such Indebtedness or as reflected on the Financial Statements, in each case outstanding as of immediately prior to the Closing plus any costs or expenses arising or resulting from the payment of any such Indebtedness prior to the Closing (including any pre-payment fees or penalties).

 

“Company Intellectual Property” means all Intellectual Property owned, licensed, used or held by the Company or any of its Subsidiaries.

 

“Consent” means any consent, approval, authorization, permission, ratification or waiver from, notice to, or registration or filing with, any Person.

 

 

“Contingent Payment” is defined in Section 1.6(b).

 

“Contract” any agreement, contract, subcontract, lease, instrument, note, option, purchase order, work order, customer order, license or sublicense or other commitment or undertaking of any nature (whether written or oral), in each case that is legally binding.

 

“Data Laws” is defined in Section 3.21(h).

 

“Databases” is defined in Section 3.21(h).

 

“Default” is defined in Section 7.2(w).

 

“Designated Shareholders” is defined in Section 6.6.

 

“Dispute Accounting Firm” is defined in Section 1.5(c).

 

“Employee Plans” means employment related plans, including but not limited to, employment or consulting agreements, collective bargaining and supplemental agreements, pension, profit sharing, incentive, bonus, deferred compensation, retirement, stock option, stock purchase, stock-related, severance, medical, hospitalization, dental, prescription, life insurance, disability, vacation, salary continuation, sick pay, welfare, fringe benefit and other employee benefit plans, contracts, programs, policies and arrangements, whether written or oral, which the Company or any of its Subsidiaries maintains or under which the Company or any of its Subsidiaries has any obligations with respect to any employee or former employee, officer or former officer, director or former director.

 

“Environmental Laws” means all Laws, Environmental Permits, Governmental Orders, or legally binding agreements relating to the use, management or disposal of Hazardous Substances, or to pollution, or protection of endangered species, natural resources, human health, safety or the environment, including: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 USC § 9601 et seq. (herein collectively “CERCLA”; the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. § 6901 et seq. (herein, collectively, RCRA”), the Hazardous Materials Transportation Act, as amended, 49 U.S.C. § 1801, et seq. (the “Hazardous Materials Transportation Act”); the Clean Water Act, as amended, 33 U.S.C. § 1311, et seq. (the “Clean Water Act”); the Clean Air Act, as amended, 42 U.S.C. § 7401-7642, (the “Clean Air Act”); the Toxic Substances Control Act, as amended, 15 U.S.C. § 2601 et seq. (the “Toxic Substances Control Act”), the Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. § 136-136y (“FIFRA”), the Emergency Planning and Community Right-to-Know Act of 1986 as amended 42 U.S.C § 11001, et seq. (Title III of SARA) (“EPCRA”) and similar or related state and local laws.

 

“Environmental Permits” means Licenses which are or have been required under or are or have been issued pursuant to Environmental Laws.

 

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

 

“Escrow Agent” is defined in the Recitals.

 

“Escrow Agreement” is defined in section 1.6(c).

 

“Estimated Working Capital” is defined in Section 1.5(a).

 

“Final Termination Date” is defined in Section 9.1(c).

 

“Final Working Capital” is defined in Section 1.5(d).

 

“Financial Statements” is defined in Section 3.7(a).

 

 

“GAAP” means United States generally accepted accounting principles and practices, consistently applied throughout the specified period and on a basis consistent with the basis on which the Financial Statements referred to in Section 3.7 were prepared.

 

“Governmental Authority” means the government of the United States or any foreign country or any state or political subdivision thereof and any entity, agency, body or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“Governmental Order” means any legally binding order, writ, judgment, injunction, decree, stipulation, award or determination of any Governmental Authority.

 

“Hazardous Substance” means any and all substances, materials or wastes or constituent thereof, whether liquid, solid, semisolid, sludge and/or gaseous, which have been defined or classified as hazardous, toxic or harmful pursuant to any Environmental Laws, or which are regulated pursuant to such Environmental Laws, including petroleum and each of its chemical constituents and by-products, urea formaldehyde foam insulation, polychlorinated biphenyls, and asbestos in any form.

 

“HIPAA” means the Health Insurance Portability and Accountability Act of 1996.

 

“HSCC” is defined in the Preamble.

 

“Indebtedness” means (i) the principal of and/or interest accrued on (A) indebtedness for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments which in each case shall include the current and long-term portion of such indebtedness; (ii) all obligations issued or assumed as the deferred purchase price of property (but excluding accounts payable arising in the ordinary course of business consistent with past practice); (iii) all obligations for the reimbursement of any obligor on any letter of credit or similar credit transaction servicing obligations of a Person or of a type described in clauses (i) and (ii) above and (iv) and (v) below, but only to the extent of the obligation secured; (iv) all obligations to pay rent or other amounts under any lease of real property or personal property which obligations are required to be classified and accounted for as capital leases in accordance with GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP; and (v) all guarantees of obligations of the type referred to in clauses (i) through (iv) of other Persons.

 

“Indemnified Party” is defined in Section 8.3(a).

 

“Indemnifying Party” is defined in Section 8.3(a).

 

“Intellectual Property” means worldwide trademarks, service marks, trade names, trade dress, designs, logos, slogans and general intangibles of like nature, together with all goodwill related to the foregoing (whether registered or not, but including any registrations and applications for any of the foregoing) (collectively, “Marks”); patents (including the ideas, inventions and discoveries described therein, any pending applications, any registrations, patents  or patent applications based on applications that are continuations, continuations-in-part, divisional, reexamination, reissues, renewals of any of the foregoing and applications and patents granted on applications that claim the benefit of priority to any of the foregoing) (collectively, “Patents”); works of authorship or copyrights (including any registrations, applications and renewals for any of the foregoing) and other rights of authorship (collectively, “Copyrights”); trade secrets and other confidential or proprietary information, know-how, confidential or proprietary technology, processes, work flows, formulae, algorithms, models, user interfaces, customer, supplier and user lists, databases, pricing and marketing information, inventions, marketing materials, inventions and discoveries (whether patentable or not) (collectively, “Trade Secrets”); computer programs and other Software, macros, scripts, source code, object code, binary code, methodologies, processes, work floes, architecture, structure, display screens, layouts, development tools, instructions and templates; published and unpublished works of authorship, including audiovisual works, databases and literary works; rights in, or associated with a person’s name, voice, signature, photograph or likeness, including rights of personality, privacy and publicity; rights of attribution and integrity and other moral rights; Uniform Resource Locators (URLs) and Net Names and applications therefor (and all interest therein), IP addresses, adwords, key word associations and related rights; all other proprietary, intellectual property and other rights relating to any or all of the foregoing; all copies and tangible embodiments of any or all of the foregoing (in whatever form or medium, including electronic media); and all rights to sue for and any and all remedies for past, present and future infringements of any or all of the foregoing and rights of priority and protection of interests therein under the Laws of any jurisdiction.

 

“IRCA” is defined in Section 3.15(c).

 

“Knowledge of the Seller” and words of similar import means, with respect to any matter in question, the actual knowledge of Stephen Bernstein, after making due and reasonable inquiry of such matter, which shall include due inquiry of any Person having primary responsibility for such matter.

 

“Knowledge of the Company” and words of similar import means, with respect to any matter in question, the actual knowledge of Trevor Stoffer, Raymond Davison, and Leonard Splane, after making due and reasonable inquiry of such matter, which shall include due inquiry of any Person having primary responsibility for such matter.

 

“knowledge,” “to the knowledge” or “known,” and words of similar import means, with respect to any matter in question, the actual knowledge of a Person after making due and reasonable inquiry of such matter, which shall include due inquiry of any Person having primary responsibility for such matter.

 

“Law” means any law, ordinance, code, statute, rule, regulation, order, judgment, injunction, award, or decree of any court, arbitrator, administrative agency, regulatory body or authority and governmental body or authority, whether federal, state, local or foreign.

 

“Lease Consents” is defined in Section 7.2(i).

 

“Leased Personal Property” is defined in Section 3.14.

 

 

“Leased Real Property” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by the Company or its Subsidiaries.

 

“Legal Expenses” means reasonable attorney’s, accountants’, investigators’, and experts’ fees, and expenses reasonably sustained or incurred in connection with the defense or investigation of any Losses.

 

“Liabilities” means any and all debts, liabilities, guarantees, commitments and obligations, whether fixed, contingent or absolute, asserted or unasserted, matured or unmatured, liquidated or unliquidated, accrued or not accrued, known or unknown, due or to become due, whenever or however arising (including whether arising out of any contract or any tort based on negligence or strict liability) and whether or not the same would be required by GAAP to be stated in financial statements or disclosed in the notes thereto.

 

“License Agreement” is defined in Section 3.17(a)(xi).

 

“Licenses” means all permits, approvals, consents, registrations, licenses, certificates, variances or other authorizations granted by or obtained from any Governmental Authority.

 

“Lien” means any pledge, lien, charge, claim, encumbrance, security interest, mortgage, option, restriction on transfer (including without limitation any buy-sell agreement or right of first refusal or offer), forfeiture, penalty, license, equity or other right of another Person of every nature and description whatsoever, other than liens for Taxes for the current tax year which are not yet due and payable.

 

“Losses” is defined in Section 8.1.

 

“Material Adverse Effect” means any fact, event, change, development or effect that, individually or together with any one or more other facts, events, changes, developments or effects, is materially adverse to (a) the assets, operations, capitalization, reasonably likely business prospects, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, or (b) the ability of the Seller and the Company to consummate the transactions contemplated by this Agreement, except to the extent resulting from (u) changes in general local, domestic, foreign, or international economic conditions, (v) changes affecting generally the industries or markets in which the Company and its Subsidiaries operate, (w) acts of war, sabotage or terrorism, military actions or the escalation thereof, (x) any changes in applicable laws or accounting rules or principles, including changes in GAAP, (y) any other action required by this Agreement, or (z) the announcement of the transactions contemplated by this Agreement (provided, however, with respect to each of clauses (u) through (x) above, that such general conditions do not affect the Company in a disproportionate manner).

 

“Material Contracts” is defined in Section 3.17(a).

 

“Maximum Contingent Payment Amount” is defined in Section 1.6(a).

 

“Measurement Period” is defined in Section 1.6(b).

 

 

“Mini Cap” is defined in Section 8.6(a).

 

“Net Names” means all internet web sites and internet domain names presently used by the Company or any of its Subsidiaries.

 

 

“Net Revenue” is defined in Section 1.6(g).

 

 

“Net Revenue Objection Notice” is defined in Section 1.6(f).

 

“Ordinary Course of Business” means the usual and ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency) of the Company and its Subsidiaries.

 

“Organizational Documents” means (a) with respect to any corporation, those instruments that at the time constitute its corporate charter as filed or recorded under the Laws of the jurisdiction of its incorporation, including the articles or certificate of incorporation, organization or association, and its by-laws or memorandum of association, in each case including all amendments thereto, as the same may have been restated, (b) with respect to any limited liability company, those instruments that at the time constitute its certificate of formation as filed or recorded under the Laws of the jurisdiction of its organization, and its operating agreement or limited liability company agreement, in each case including all amendments thereto, as the same may have been restated, and (c) with respect to any other entity, the equivalent organizational or governing documents of such entity.

 

“Owned Real Property” means all land, together with all buildings, structures, improvements, and fixtures located thereon, and all easements and other rights and interests appurtenant thereto, owned by the Company or its Subsidiaries.

 

“Person” or “person” means an individual, a partnership, limited partnership, a corporation, a limited liability company, proprietorship, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, union, any other business entity, or a Governmental Authority (or any department, agency, or political subdivision thereof).

 

“Personal Property” means all tangible personal property and interests therein, including all machinery, equipment, tools, dies, jigs, patterns, molds, trade fixtures, furniture, furnishings, vehicles, computer hardware, drawings, designs and blue prints

 

“Personal Property Leases” is defined in Section 3.14.

 

“Personally Identifiable Information” means information that can be used to identify or contact Persons, which may include their first and last name, physical address, e-mail address and telephone number.

 

 

“Positive Working Capital Adjustment Amount” is defined in Section 1.5(d).

 

“Pre-Closing Financial Statements” is defined in Section 5.1(b).

 

“Premises” is defined in Section 3.13(e).

 

 

“Prior Actions” is defined in Section 3.22(b).

 

“Privacy Statement” means each of the Company’s privacy policies previously or currently published on any Company website, contained within the Company’s terms of use, or otherwise made available by the Company regarding the collection, retention, use, disclosure, transfer and/or distribution of Personally Identifiable Information, including from visitors and users of any Company website.

 

“Proceeding” means any claim, action, charge, complaint, suit, litigation, arbitration, grievance, inquiry, proceeding, hearing, audit, examination or investigation (including any civil, criminal, administrative, investigative or appellate proceeding) by or before any Governmental Authority or arbitrator.

 

“Purchase Price” is defined in Section 1.3.

 

“Real Property” is defined in Section 3.13(c).

 

“Real Property Laws” is defined in Section 3.13(d).

 

“Receivables” means all accounts receivable, notes receivable and other amounts receivable from third parties.

 

“Related Person” means (i) with respect to a particular individual, each other member of such individual’s family, including the individual’s spouse, any other natural person who is related to the individual or the individual’s spouse within the second degree, and any other natural person who resides with such individual, and (ii) with respect to a specified Person other than an individual, each shareholder, partner or member or employee of such specified Person and each Person that serves as a director, officer, or manager of such specified Person (or in a similar capacity) of such specified Person.

 

“Remaining Payments” is defined in Section 8.7.

 

“Representative” means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of that Person.

 

“Revised Working Capital” is defined in Section 1.5(b).

 

“Remaining Payments” is defined in Section 8.7.

 

“SEC” means the United States Securities and Exchange Commission.

 

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

 

“Seller” is defined in the Preamble.

 

“Seller Disclosure Schedule” is defined in Article II.

 

“Seller Documents” is defined in Section 2.1.

 

 

“Seller’s Indemnified Persons” is defined in Section 8.2.

 

“Seller Prior Actions” is defined in Section 2.6(a).

 

“Shareholders” is defined in Section 6.6.

 

“Shares” is defined in the Recitals.

 

“Significant Customer” is defined in Section 3.18.

 

“Significant Service Provider” is defined in Section 3.18.

 

“Significant Supplier” is defined in Section 3.18.

 

“Software” means all computer programs, known by any name, including all versions thereof, and all related documentation, training manuals and materials, user manuals, technical and support documentation, source code, object, executable or binary code, code libraries, algorithms, macros, scripts, compiler directives, program architecture, design concepts, system designs, program structure, sequence and organizations, comments, screens, user interfaces, report formats, templates, menus, buttons and icons and all files, data, materials, manuals, design notes and other items and documentation related thereto or associated therewith.

 

“SPA” means that certain Stock Purchase Agreement by and among the Seller, the Company and former shareholders of the Company dated April 16, 2010.

 

“Subsidiary” means, with respect to any Person, any other domestic or foreign corporation, limited liability company, general or limited partnership, unincorporated association or other business entity of which (i) if a corporation, a majority of the total voting power of the capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or Controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interests thereof is at the time owned or Controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof.

 

 “Tax” or “Taxes” means any assessment of any kind or nature imposed by any Governmental Authority, any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), duties including customs duties, capital stock, franchise, profits, withholding, social security (or similar), 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, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including any interest, penalty, deficiency, or addition thereto, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the liability for Taxes of any other Person.

 

 

“Tax Return” means any report, return, declaration, statement or other information required to be supplied to a taxing authority in connection with Taxes.

 

“Transfer Taxes” is defined in Section 10.1.

 

“Working Capital” means an amount equal to the Working Capital Assets minus the Working Capital Liabilities, all as of the close of business on the Closing Date.

 

“Working Capital Assets” means the current assets of the Company determined in accordance with GAAP applied on a consistent basis and in a manner consistent with the calculation of Current Assets set forth on Schedule II hereto and subject to the principles, if any, set forth on Schedule II hereto.

 

“Working Capital Liabilities” means the Company’s current liabilities determined in accordance with GAAP applied on a consistent basis and in a manner consistent with the calculation of Current Liabilities set forth on Schedule II hereto and subject to the principles, if any, set forth on Schedule II hereto.

 

“Working Capital Statement” is defined in Section 1.5(a).

 

“Working Capital Objection Notice” is defined in Section 1.5(b).

 

“Working Capital Target” means $150,000.