Datawatch Corporation
DATAWATCH CORP (Form: 8-K, Received: 01/30/2018 17:10:43)

  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

 

Date of report (Date of earliest event reported) January 24, 2018

 

 

Datawatch Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation)

 

000-19960 02-0405716
(Commission File Number) (IRS Employer Identification No.)
   
4 Crosby Drive  
Bedford, Massachusetts   01730
(Address of Principal Executive Offices) (Zip Code)

 

(978) 441-2200
(Registrant’s Telephone Number, Including Area Code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
     
  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
     
  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
     
  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Item 1.01. Entry Into a Material Definitive Agreement

  

Acquisition of Angoss Software

 

On January 30, 2018, Datawatch Corporation (“Datawatch”), through its newly incorporated and wholly-owned Canadian subsidiary, 2617421 ONTARIO INC. (the “Datawatch Subsidiary”), entered into a Share Purchase Agreement (the “Purchase Agreement”) for the purchase of all the outstanding capital stock of Angoss Software Corporation, a corporation existing under the laws of Ontario (“Angoss”), from the shareholders of Angoss (the “Angoss Shareholders”) for cash.

 

The Datawatch Subsidiary consummated the acquisition of the outstanding capital stock of Angoss on January 30, 2018 for $24,500,000 in cash, adjusted for net indebtedness and variance from target working capital. Datawatch and the Datawatch Subsidiary funded a portion of the purchase price in the acquisition with a term loan drawn under the new credit facility described below under the heading Loan Agreement .

 

The Purchase Agreement contains usual and customary covenants, indemnification provisions and representations and warranties that the parties to the Purchase Agreement made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for the purposes of the Purchase Agreement between the parties, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Purchase Agreement. Moreover, the representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to Datawatch shareholders, and the representations and warranties may have been used for the purposes of allocating risk between the parties rather than establishing matters as facts.

 

The foregoing summary of the Purchase Agreement is not complete and is qualified in its entirety by reference to the complete text of the definitive agreement, which is filed as Exhibit 2.1 to this Form 8-K and which is incorporated herein by reference in its entirety. The Purchase Agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about Angoss or any of the other parties thereto. Investors should read the Purchase Agreement together with the other information concerning Datawatch and Angoss that is publicly filed in reports and statements with the Securities and Exchange Commission.

 

Loan Agreement

 

On January 24, 2018, Datawatch entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“Lender”). The Loan Agreement provides for a secured term loan facility in the aggregate principal amount of $10,000,000 (the “Term Loan”), which was advanced in full on January 26, 2018, and a secured revolving credit facility in the aggregate principal amount of $5,000,000 (the “Revolver” and, together with the Term Loan, the “Loans”), which Revolver was not drawn at closing. The Revolver may be used for working capital and general business purposes and the Term Loan will be used to fund a portion of the purchase price for the acquisition of all the outstanding capital stock of Angoss as described above under the heading Acquisition of Angoss Software .

 

 

 

 

Beginning on March 1, 2018, Datawatch must repay the Term Loan in equal monthly installments of principal based on a 48-month amortization schedule, plus accrued interest. The principal amount outstanding under the Term Loan accrues interest at a floating per annum rate equal to 1.00% above the prime rate. All outstanding principal and accrued and unpaid interest under the Term Loan is due and payable in full on January 24, 2021. Monthly interest payments associated with the Term Loan begin on February 1, 2018.

 

Subject to certain exceptions, Datawatch must pay a termination fee equal to 1.0% of the outstanding principal balance of the prepaid Term Loan if such prepayment occurs on or prior to January 24, 2019 or, if such prepayment occurs between January 25, 2019 and January 24, 2020, 0.50% of the outstanding principal balance of the prepaid Term Loan.

 

Any principal amounts outstanding from time to time under the Revolver will accrue interest at a floating per annum rate equal to 0.50% above the prime rate and will be due and payable on January 24, 2020. Availability under the Revolver is based on the amount of eligible accounts receivable from time to time.

 

Datawatch’s obligations under the Loan Agreement are secured by a security interest on substantially all of its assets, excluding intellectual property.

 

The Loan Agreement contains customary events of default including, among others, payment defaults, breaches of covenants defaults, a materially adverse change default, bankruptcy and insolvency defaults, judgement defaults, a subsidiary cash default and inaccuracies of representations and warranties defaults. Upon the occurrence and during the continuance of an event of default, Lender may declare all outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the Loan Agreement. During the existence of an event of default, interest rates on the obligations could be increased to 5.0% above the otherwise applicable interest rate.

 

The foregoing summary of the Loan Agreement is not complete and is qualified in its entirety by reference to the complete text of the definitive agreement, which is filed as Exhibit 10.1 to this Form 8-K and which is incorporated herein by reference in its entirety.

 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

The information set forth under Item 1.01 under the heading Acquisition of Angoss Software is incorporated herein by reference into this Item 2.01.

 

No material relationship exists between Datawatch, the Datawatch Subsidiary or their affiliates, on the one hand, and Angoss, the Angoss Shareholders or their affiliates, on the other hand, other than in respect of the Purchase Agreement and the other agreements and documents contemplated by the Purchase Agreement.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth under Item 1.01 under the heading Loan Agreement is incorporated herein by reference into this Item 2.03.

 

 

 

 

Item 7.01 Regulation FD Disclosure.

 

On January 30, 2018, Datawatch issued a press release announcing the execution and closing of the acquisition of Angoss pursuant to the Purchase Agreement described above. The information contained in the press release, which is attached to this report as Exhibit 99.1, is incorporated by reference herein and is furnished pursuant to Item 7.01, “Regulation FD Disclosure.”

 

On January 30, 2018, Datawatch released a corporate presentation summarizing its acquisition of Angoss, dated January 30, 2018. The information contained in the corporate presentation, which is attached to this report as Exhibit 99.2, is incorporated by reference herein and is furnished pursuant to Item 7.01, “Regulation FD Disclosure.”

 

Item 9.01 Financial Statements and Exhibits.

 

(a) Financial Statements of Businesses Acquired

 

As of the date of filing this Current Report on Form 8-K, it is impracticable for Datawatch to provide the financial statements required by Item 9.01(a) of Form 8-K. In accordance with Item 9.01(a)(4) of Form 8-K, such financial statements will be filed by amendment to this Form 8-K no later than April 17, 2018.

 

(b) Pro-Forma Financial Information.

 

As of the date of filing this Current Report on Form 8-K, it is impracticable for Datawatch to provide the pro forma financial information required by Item 9.01(b) of Form 8-K. In accordance with Item 9.01(b)(2) of Form 8-K, such financial information will be filed by amendment to this Form 8-K no later than April 17, 2018.

 

(d) Exhibits

 

The following Exhibits are furnished as part of this report:

 

Exhibit No. Description
   
2.1 Share Purchase Agreement by and among Angoss Software Company, 2617421 ONTARIO INC., Peterson Partners (BVI) VI, L.P. and the Persons listed on Schedule A and Schedule B attached thereto, dated January 30, 2018.*

 

* The registrant has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or similar attachment to the United States Securities and Exchange Commission upon request.

 

10.1 Loan and Security Agreement by and between Datawatch Corporation and Silicon Valley Bank, dated as of January 24, 2018.
   
99.1 Press Release issued by Datawatch Corporation, dated January 30, 2018.
   
99.2 Corporate Presentation released by Datawatch Corporation, dated January 30, 2018.

 

 

 

 

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  

  DATAWATCH CORPORATION
       
       
  By:   /s/ James Eliason
    Name: James Eliason
    Title: Chief Financial Officer

  

Date: January 30, 2018

  

 

 

 

EXHIBIT INDEX

 

Exhibit No. Description
   
2.1 Share Purchase Agreement by and among Angoss Software Company, 2617421 ONTARIO INC., Peterson Partners (BVI) VI, L.P. and the Persons listed on Schedule A and Schedule B attached thereto, dated January 30, 2018.*

 

* The registrant has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or similar attachment to the United States Securities and Exchange Commission upon request.

 

10.1 Loan and Security Agreement by and between Datawatch Corporation and Silicon Valley Bank, dated as of January 24, 2018.
   
99.1 Press Release issued by Datawatch Corporation, dated January 30, 2018.
   
99.2 Corporate Presentation released by Datawatch Corporation, dated January 30, 2018.

 

 

 

 

 

 

Exhibit 2.1

 

Share Purchase Agreement

 

BETWEEN

 

ANGOSS SOFTWARE corporation

 

- and -

 

2617421 ONTARIO INC.

 

- and -

 

PETERSON PARTNERS (BVI) VI, L.P.

 

- and -

 

the Sellers listed on schedule a attached hereto

 

- and -

 

the majority optionholders listed on schedule b attached hereto

 

J anuary 30 , 2018

 

 

 

 

SHARE PURCHASE AGREEMENT

 

THIS AGREEMENT is dated January 30, 2018

 

BETWEEN:

 

Angoss Software Corporation

 

(the “ Corporation ”)

 

- and -

 

2617421 Ontario Inc.

 

(the “ Buyer ”)

 

- and -

 

Peterson Partners (BVI) VI, L.P.

 

(the “ Securityholder Representative ”)

 

- and -

 

the Persons listed on Schedule A attached hereto (each, a “ Seller ” and, collectively, the “ Sellers ”)

 

-and-

 

the Persons listed on Schedule B attached hereto ) (each, a “ Majority Optionholder ” and, collectively, the “ Majority Optionholders ”)

 

CONTEXT:

 

  A. The Corporation is a corporation existing under the laws of Ontario.
     
  B. The Sellers are the owners of all of the issued and outstanding shares in the capital of the Corporation.
     
  C. The Sellers desire to sell to the Buyer and the Buyer desires to purchase from the Sellers all of the issued and outstanding shares in the capital of the Corporation.

 

THEREFORE , the Parties agree as follows:

 

 

 

 

Article 1
INTERPRETATION

 

1.1 Definitions

 

In this Agreement, in addition to terms defined elsewhere in this Agreement, the following terms have the following meanings:

 

1.1.1 Accounting Principles ” means the same accounting methods, policies, practices and procedures, with consistent classifications, judgments and estimation methodology as were used in the preparation of the audited Financial Statements for the year ended December 31, 2016, in each case to the extent in accordance with GAAP.

 

1.1.2 Accounts Receivable ” means all accounts receivable and other amounts due, owing or accruing due to the Corporation and the Subsidiary in connection with its Business, net of an allowance for doubtful accounts calculated in accordance with the Accounting Principles.

 

1.1.3 Actual Closing Date Net Indebtedness ” means the Indebtedness minus Cash as of the close of business on the Closing Date (disregarding the transactions contemplated by this Agreement), as shown on the Closing Date Statement.

 

1.1.4 Actual Closing Date Working Capital ” means, on a consolidated basis, (i) Current Assets as of the close of business on the Closing Date minus (ii) Current Liabilities as of the close of business on the Closing Date, as shown on the Closing Date Statement.

 

1.1.5 Affiliate ” means an affiliate as that term is defined in the Business Corporations Act (Ontario).

 

1.1.6 Agreement ” means this agreement, including all Schedules and Exhibits, as it may be confirmed, amended, modified, supplemented or restated by written agreement between the Parties.

 

1.1.7 Allocated Deferred Revenue ” means thirty percent (30%) of all deferred revenue of the Corporation and the Subsidiary determined in accordance with the Accounting Principles.

 

1.1.8 Arbitration Act ” is defined in Section 9.1.

 

1.1.9 Arbitration Notice ” is defined in Section 9.1.2.

 

1.1.10 Arbitrator ” is defined in Section 9.1.

 

1.1.11 Arm’s Length ” has the meaning set out in the ITA.

 

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1.1.12 Base Purchase Price ” means $24,500,000.

 

1.1.13 Bayer Agreement ” means the Retailer Segmentation and ROI Analysis Software and Service Agreement dated October 1, 2017 between the Corporation and Bayer Healthcare Company Ltd., as amended, modified or supplemented from time to time.

 

1.1.14 Books and Records ” means books, ledgers, files, lists, reports, plans, logs, deeds, surveys, correspondence, operating records, Tax Returns and other data and information, including all data and information stored on computer-related or other electronic media, maintained with respect to the Business, the Corporation and the Subsidiary.

 

1.1.15 Business ” means the business of the Corporation and the Subsidiary.

 

1.1.16 Business Day ” means any day excluding a Saturday, Sunday or statutory holiday in the Province of Ontario or the Commonwealth of Massachusetts.

 

1.1.17 Buyer ” is defined in the recital of the Parties above.

 

1.1.18 Buyer Indemnitees ” means the Buyer, the Corporation and the Subsidiary and their respective successors and assigns.

 

1.1.19 Cash ” means, on a consolidated basis, the cash and cash equivalents and marketable securities of the Corporation and the Subsidiary, each net of outstanding checks. Cash shall be determined in accordance with the Accounting Principles and without giving effect to the Transactions or any purchase accounting arising from the consummation of the Transactions calculated in accordance with the Accounting Principles.

 

1.1.20 Claim ” means any claim, demand, action, cause of action, suit, litigation, arbitration, mediation, order, audit, investigation, proceeding, complaint, grievance, charge, prosecution, assessment or reassessment, including before any court, arbitrator, mediator or Governmental Authority and including any civil, criminal, administrative, investigative or appellate proceeding.

 

1.1.21 Closing ” means the completion of Transactions contemplated by this Agreement.

 

1.1.22 Closing Date ” means January 30, 2018 or any other date that the Parties may agree is the date upon which the Closing will take place.

 

1.1.23 Closing Date Statement ” is defined in Section 2.6.

 

1.1.24 Closing Date Statement Dispute ” is defined in Section 2.6.

 

1.1.25 Closing Date Working Capital Target ” means zero.

 

1.1.26 Closing Time ” means 11:50 pm (EST) on the Closing Date.

 

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1.1.27 Common Shares ” means common shares of the Corporation.

 

1.1.28 Communication ” means any notice, demand, request, consent, approval or other communication which is required or permitted by this Agreement to be given or made by a Party.

 

1.1.29 Confidential Information ” means information, whether in written or electronic form, or committed to memory, relating to the Sellers, the Corporation or the Subsidiary.

 

1.1.30 Constating Documents ” means, with respect to any entity, the articles of incorporation, articles of amendment, articles of amalgamation, by-laws, partnership agreement, formation agreement, trust agreement or other similar organizational documents of such entity (in each case, as amended).

 

1.1.31 Contract ” means any agreement, contract, understanding, undertaking, commitment, licence, arrangement or Lease, whether written or oral.

 

1.1.32 Corporation ” is defined in the “Context” above.

 

1.1.33 Current Assets ” means the aggregate sum of all current assets of the Corporation and the Subsidiary, on a consolidated basis, as determined in accordance with the Accounting Principles, including Accounts Receivable and Prepaid Amounts and, for greater certainty, excluding Cash and provided that, for the purposes of this definition of Current Assets, the Account Receivable under the Bayer Agreement shall be deemed to be an amount equal to $1,021,500 (the “ Bayer Receivable ”).

 

1.1.34 Current Liabilities ” means the aggregate sum of all current liabilities of the Corporation and the Subsidiary, on a consolidated basis, as determined in accordance with the Accounting Principles, including Allocated Deferred Revenue, the accounts payable (less the amount of outstanding checks) and all other amounts owed or accrued by the Corporation and the Subsidiary that are payable within one year of the Closing Date (including sales commissions owed in respect of the Bayer Receivable),Taxes (including withholding taxes and related interest and penalties) payable with respect to any period prior to the Closing Date and any employer portion of any contributions, withholdings or payroll Taxes in respect of any Sale Bonuses, the Vested Option Amount or the Sellers’ Unvested Option Portion, but excluding any Indebtedness, the amount of the Sellers’ Expenses, the Vested Option Amount, the Unvested Option Amount and any deferred revenue other than the Allocated Deferred Revenue.

 

1.1.35 Data Room ” means the electronic data room established by the Sellers into which information respecting the Corporation and the Subsidiary has been placed for review by the Buyer and a full copy of which will be electronically stored by way of DVD or data stick on Closing and delivered to the Buyer.

 

1.1.36 Direct Claim ” is defined in Section 8.5.

 

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1.1.37 Disclosure Schedule ” is defined at Article 4.

 

1.1.38 Disputes ” is defined in Section 9.1.

 

1.1.39 Dispute Notice ” is defined in Section 2.6.

 

1.1.40 Disputed Amounts ” is defined in Section 2.7.1.

 

1.1.41 D&O Indemnified Person ” or “ D&O Indemnified Persons ” is defined in Section 6.4.1.

 

1.1.42 Employees ” means all personnel and independent contractors employed, engaged or retained by the Corporation or the Subsidiary, including any that are on medical or long-term disability leave, or other statutory or authorized leave of absence.

 

1.1.43 Environment ” means the ambient air, all layers of the atmosphere, all water including surface water and underground water, all land, all living organisms and the interacting natural systems that include components of air, land, water, living organisms and organic and inorganic matter, and includes indoor spaces.

 

1.1.44 Environmental Laws ” means any Laws relating to the Environment and protection of the Environment, the regulation of chemical substances or products, health and safety including occupational health and safety, and the transportation of dangerous goods.

 

1.1.45 Equityholders ” means, collectively, the Sellers and the Majority Optionholders and each such Person is referred to herein as an “ Equityholder ”.

 

1.1.46 Equityholder Consideration ” means an amount equal to the sum of (i) the Purchase Price and (ii) the Vested Majority Option Amount.

 

1.1.47 Escrow Agent ” means Gowling WLG (Canada) LLP.

 

1.1.48 Escrow Agreement ” means the Escrow Agreement in substantially the form attached hereto as Exhibit 1.1.48, by and among the Escrow Agent, the Buyer and the Securityholder Representative, to be entered into at the Closing.

 

1.1.49 Escrow Fund ” means an amount equal to $200,000, less amounts disbursed therefrom from time to time in accordance with this Agreement and the Escrow Agreement.

 

1.1.50 Estimated Closing Date Statement ” is defined in Section 2.5.

 

1.1.51 Estimated Closing Date Net Indebtedness ” means Indebtedness minus Cash as of the close of business on the Closing Date (disregarding the transactions contemplated by this Agreement) as shown on the Estimated Closing Date Statement.

 

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1.1.52 Estimated Closing Date Working Capital ” means, on a consolidated basis, (i) Current Assets as of the close of business on the Closing Date (disregarding the transactions contemplated by this Agreement) minus (ii) Current Liabilities as of the close of business on the Closing Date (disregarding the transactions contemplated by this Agreement other than obligation to pay the employer portion of any contributions, withholdings or payroll Taxes in respect of any Sale Bonuses, the Vested Option Amount or the Sellers’ Unvested Option Portion) as shown on the Estimated Closing Date Statement.

 

1.1.53 Estimated Purchase Price ” shall be an amount, as calculated in the Estimated Closing Date Statement, equal to (i) the Base Purchase Price, minus (ii) the Estimated Closing Date Net Indebtedness, minus (iii) the amount of the Sellers’ Expenses, minus (iv) the Vested Option Amount, minus (v) the Sellers’ Unvested Option Portion and then adjusted as follows:

 

1.1.53.1 if the Closing Date Working Capital Target is greater than the Estimated Closing Date Working Capital, decreased by an amount equal to the difference between the Closing Date Working Capital Target and the Estimated Closing Date Working Capital;

 

1.1.53.2 if the Closing Date Working Capital Target is less than the Estimated Closing Date Working Capital, increased by an amount equal to the difference between the Estimated Closing Date Working Capital and the Closing Date Working Capital Target; or

 

1.1.53.3 if the Closing Date Working Capital Target is equal to the Estimated Closing Date Working Capital, no adjustment shall be made.

 

1.1.54 ETA ” means the Excise Tax Act (Canada).

 

1.1.55 Excluded Claims ” is defined in Section 8.4.1.

 

1.1.56 Financial Statements ” means:

 

1.1.56.1 the audited consolidated balance sheet and statements of income, retained earnings and cash flow of the Corporation as at and for the financial years ended December 31, 2015 and December 31, 2016;

 

1.1.56.2 the unaudited consolidated balance sheets and statements of income and cash flows of the Corporation as at and for the twelve-months ended December 31, 2017.

 

1.1.57 Fraud ” shall mean any deliberate and intentional fraud with respect to the misrepresentation of a fact in the representations or warranties contained in Article 3, Article 4, Article 5.

 

1.1.58 Fundamental Representations ” is defined in Section 8.1.

 

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1.1.59 GAAP ” means Canadian generally accepted accounting principles applicable to private enterprises under Part II of the CPA Canada Handbook of the Chartered Professional Accountants of Canada as at the date on which any calculation is made or required to be made in accordance with “GAAP.”

 

1.1.60 Governmental Authority ” means:

 

1.1.60.1 any federal, provincial, state, local, municipal, regional, territorial, aboriginal, or other government, governmental or public department, branch, ministry, tribunal, or court, domestic or foreign, including any district, agency, commission, board, arbitration panel or authority and any subdivision of any of them exercising or entitled to exercise any administrative, executive, judicial, ministerial, prerogative, legislative, regulatory, or taxing authority or power of any nature; and

 

1.1.60.2 any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of them, and any subdivision of any of them.

 

1.1.61 Indebtedness ” means, with respect to a Person, on a consolidated basis, any of the following: (a) any outstanding indebtedness or other obligations for borrowed money, (b) all outstanding indebtedness evidenced by bonds, debentures, notes or other similar instruments or debt securities, (c) any obligations to pay the deferred purchase price of property, services or other assets (including any seller notes and “earn-outs”, payments for Tax benefits or similar obligations, but excluding trade accounts payable and other Current Liabilities), (d) all outstanding indebtedness in respect of drawn letters of credit, bankers’ acceptances, surety bonds, performance bonds or similar facilities, (e) all outstanding payment obligations under any interest rate or currency swap agreement, collars, caps or similar hedging agreement, (f) any obligations as lessee under capitalized leases, (g) any indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property, (h) all outstanding liabilities for deferred compensation or pension obligations, (i) all outstanding indebtedness of in respect of any guaranty of indebtedness of another Person of the type described in clauses (a) through (h) above, and (j) any accrued interest, termination fees, prepayment premiums, penalties, make-whole payments, breakage costs or other similar fees, costs or expenses incurred (or required to be paid at Closing) in connection with the prepayment, repayment, redemption, payoff, amendment, modification or supplement of any of the foregoing in clauses (a) through (i) at the Closing.

 

1.1.62 Indemnified Party ” means the Party or other indemnified Person entitled to make a Claim for indemnification under any provision of Article 8.

 

1.1.63 Indemnifying Party ” means the Party providing indemnification under any provision of Article 8.

 

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1.1.64 Indemnity Claim ” is defined in Section 8.5.

 

1.1.65 Indemnity Notice ” is defined in Section 8.5.

 

1.1.66 Independent Accountant ” is defined in Section 2.7.1.

 

1.1.67 Insurance Policies ” is defined in Section 4.32.1.

 

1.1.68 Intellectual Property ” means:

 

1.1.68.1 trade-marks, design marks, logos, service marks, certification marks, official marks, trade names, business names or corporate names, whether or not registered or the subject of an application for registration and whether or not registrable, and associated goodwill (“ Trade-marks ”);

 

1.1.68.2 inventions, arts, processes, machines, articles of manufacture, compositions of matter, business methods, formulae, developments and improvements, whether or not patented or the subject of an application for patent and whether or not patentable, methods and processes for making any of them, and related documentation (whether in written or electronic form) and know-how (“ Inventions ”);

 

1.1.68.3 computer software programs, software in source code or object code form, algorithms, documentation, literary works, artistic works, pictorial works, graphic works, musical works, dramatic works, audio visual works, performances, sound recordings and signals, including their content, and any compilations of any of them, whether or not registered or the subject of an application for registration, or capable of being registered (“ Works ”);

 

1.1.68.4 domain names, whether registered primary domain names or secondary or other higher level domain names, Internet addresses and social media identifiers (“ Domain Names ”);

 

1.1.68.5 industrial designs and all variants of industrial designs, whether or not registered or the subject of an application for registration and whether or not registrable (“ Designs ”); and

 

1.1.68.6 trade secrets, technical expertise, and research data and other confidential information relating to goods and services.

 

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1.1.69 Intellectual Property Rights ” means:

 

1.1.69.1 any common law principle or statutory provision which may provide a right in Intellectual Property, including all:

 

(a) common law rights and registrations, pending applications for registration and rights to file applications for the Trade-marks, including all rights of priority;

 

(b) Patents, pending Patent applications and rights to file applications for patents or Inventions, including all rights of priority and rights in continuations, continuations-in-part, divisions, reissues, renewals, re-examinations, exclusions and other derivative applications and patents;

 

(c) copyrights in Works and all registrations, pending applications for registration and rights to file applications for Works and all moral rights and benefits of waivers of moral rights in Works;

 

(d) registrations, pending applications for registration and rights to file applications for registration of Domain Names and all other common law and statutory rights in Domain Names; and

 

(e) industrial design rights, design patents, design registrations, pending patent and design applications and rights to file applications for Designs, including all rights of priority and rights in continuations, continuations-in-part, divisions, re-examinations, reissues and other derivative applications;

 

1.1.69.2 all rights in licences, sub-licences, franchise agreements, waivers and other contractual rights in any of the items listed in Section 1.1.69.1; and

 

1.1.69.3 all rights to enforce the rights and obtain remedies for a violation of any of the rights listed in Sections 1.1.69.1 and 1.1.69.2.

 

1.1.70 IRC ” means the Internal Revenue Code of 1986, as amended (United States).

 

1.1.71 ITA ” means the Income Tax Act (Canada).

 

1.1.72 to the Knowledge of ” means (i) with respect to any Seller, the actual knowledge of such Seller, and (ii) with respect to the Corporation, the actual knowledge, after reasonably inquiry of their direct reports, of Brandon Cope, Wendy Ha, Serguei Lomovtsev and Mamdouh Refaat.

 

1.1.73 Law ” or “ Laws ” means all foreign, federal, state and local laws, statutes, codes, ordinances, decrees, rules, regulations, by-laws or other requirements of any Governmental Authority applicable to such Person and its business, operations or ownership of use of any of its property or assets.

 

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1.1.74 Leased Premises ” means all of the lands and premises which are leased by the Corporation or the Subsidiary as set forth on Section 4.19 of the Disclosure Schedule.

 

1.1.75 Leases ” means the leases entered into by the Corporation and the Subsidiary under which the Leased Premises are leased.

 

1.1.76 Letter of Intent ” means the letter of intent dated December 4, 2017 from the Buyer to the Corporation with respect to the transactions contemplated by this Agreement.

 

1.1.77 Licence Agreements ” is defined in Section 4.20.7.

 

1.1.78 Licensed IP ” means the Intellectual Property and Intellectual Property Rights owned by Persons other than the Corporation or the Subsidiary and which the Corporation or the Subsidiary uses.

 

1.1.79 Lien ” means any security interest, mortgage, deed of trust, charge, pledge, hypothec, lien, encumbrance, restriction, option, adverse claim, right of first refusal or offer, lease, assessment, easement, restrictive agreement, encroachment, right-of-way, survey or title defect or other encumbrance of any kind.

 

1.1.80 “Loss” means any loss, damage, Tax, cost or expense, including the costs and expenses (including professional fees) of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise.

 

1.1.81 Majority Optionholders ” means the persons listed on Schedule B attached hereto.

 

1.1.82 Material Adverse Effect ” means any change, event, occurrence, effect, matter, condition, state, fact or circumstance that (a) is or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, operations, properties, results of operations, assets, financial condition or liabilities (financial or otherwise) of the Corporation and the Subsidiary, taken as a whole, or (b) would prevent, materially delay or materially impede the ability of the Sellers, the Corporation or the Subsidiary to perform their respective obligations under this Agreement or any of the other Transaction Documents or to complete the transactions contemplated hereby or thereby; except that none of the following shall be taken into account in the determination of whether a Material Adverse Effect has occurred under clause (a):

 

1.1.82.1 any change generally affecting the industries in which the Corporation and the Subsidiary operate but only to the extent that such change does not have a disproportionately adverse effect on the Corporation or the Subsidiary as compared to other businesses in the same industry;

 

1.1.82.2 any change in global, national or regional political conditions (including the outbreak or escalation of war or acts of terrorism) or in general economic, business, regulatory, currency exchange, political or market (including commodity market) conditions or in national or global financial or capital markets but only to the extent that such change does not have a disproportionately adverse effect on the Corporation or the Subsidiary as compared to other businesses in the same industry;

 

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1.1.82.3 any change in Law or GAAP after the date of this Agreement; and

 

1.1.82.4 any natural disaster but only to the extent that such change does not have a disproportionately adverse effect on the Corporation or the Subsidiary as compared to other businesses in the same industry.

 

1.1.83 Material Contract ” is defined in Section 4.22.

 

1.1.84 Material Customers ” is defined in Section 4.26.

 

1.1.85 Material Vendors ” is defined in Section 4.26.

 

1.1.86 Non-Disclosure Agreement ” means the non-disclosure agreement dated June 6, 2017 between the Buyer and the Corporation, as amended from time to time.

 

1.1.87 Open Source License ” is defined in Section 4.20.8

 

1.1.88 Intentionally omitted.

 

1.1.89 Options ” means all options granted by the Corporation to purchase Common Shares that are outstanding immediately prior to Closing and identified on Schedule 2.2.

 

1.1.90 Ordinary Course ” means, with respect to an action taken by the Corporation or the Subsidiary, that such action is consistent with the past practices of the Corporation or the Subsidiary and is taken in the ordinary course of the normal day-to-day operations of the business of the Corporation or the Subsidiary.

 

1.1.91 Owned IP ” means all Intellectual Property that is owned by the Corporation or the Subsidiary.

 

1.1.92 Parties ” means the Sellers, the Securityholder Representative and the Buyer, collectively, and “ Party ” means any of them.

 

1.1.93 Permits ” means authorizations, registrations, permits, franchises, certificates of approval, approvals, grants, licences, quotas, consents, commitments, rights or privileges issued or granted by any Governmental Authority.

 

1.1.94 Permitted Liens ” means:

 

1.1.94.1 title defects affecting title to any Leased Premises which are of a minor nature and do not, individually or in the aggregate materially impair current value, occupancy, possession or use of any Leased Premises;

 

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1.1.94.2 any right of expropriation conferred upon, reserved to or vested in any Governmental Authority under any Law;

 

1.1.94.3 zoning restrictions, easements and rights of way or other similar Liens or privileges in respect of real property which do not, individually or in the aggregate, materially impair the current value, occupancy, possession or use of any of the Leased Premises and which are not violated in any respect by existing or proposed structures or land use; or

 

1.1.94.4 any Lien listed in Schedule 1.1.94.4.

 

1.1.95 Person ” will be broadly interpreted and includes:

 

1.1.95.1 a natural person, whether acting in his or her own capacity, or in his or her capacity as executor, administrator, estate trustee, trustee or personal or legal representative, and the heirs, executors, administrators, estate trustees, trustees or other personal or legal representatives of a natural person;

 

1.1.95.2 a corporation or a company of any kind, a partnership of any kind, a sole proprietorship, a trust, a joint venture, an association, an unincorporated association, an unincorporated syndicate, an unincorporated organization or any other association, organization or other entity of any kind; and

 

1.1.95.3 a Governmental Authority.

 

1.1.96 Personal Information ” means information about an individual who can be identified by the Person who holds that information.

 

1.1.97 Peterson Partners ” means Peterson Partners (BVI) VI, L.P.

 

1.1.98 Plans ” means all employee benefit plans, programs, agreements or arrangements, domestic or foreign, including all bonus, incentive, profit sharing, pension, retirement compensation, retirement savings, retirement income, deferred compensation, incentive compensation, welfare, fringe benefit, legal, health and other medical, dental, life, accident, disability, supplemental retirement, profit sharing, stock purchase, stock option, restricted stock, phantom stock, stock appreciation rights or other equity incentive plans, programs, agreements or arrangements, and all termination, severance or other plans, programs, agreements or arrangements, every other benefit plan, program, agreement or arrangement which are maintained, contributed to or sponsored by the Corporation or the Subsidiary, or under which the Corporation or the Subsidiary has any liability or contingent liability, for the benefit of, or relating to, any Employee or former Employee or their respective dependants or beneficiaries or which otherwise provide coverage for any current or former Employee or their respective dependants and beneficiaries.

 

1.1.99 Preferred Shares ” is defined in Section 4.8.

 

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1.1.100 Prepaid Amounts ” means all prepaid expenses and deposits made by the Corporation or the Subsidiary.

 

1.1.101 Pro Rata Portion ” means the percentage set out opposite each Equityholder’s name on Schedule 2.5.

 

1.1.102 Purchase Price ” shall be an amount equal to the Estimated Purchase Price, as adjusted after the Closing pursuant to Section 2.8.

 

1.1.103 Purchased Shares ” is defined in Section 2.1.

 

1.1.104 Release ” means to release, spill, leak, pump, pour, emit, empty, discharge, deposit, inject, leach, dispose, dump or permit to escape.

 

1.1.105 Remedial Order ” means any remedial order, including any notice of non-compliance, order, other complaint, direction or sanction issued, filed or imposed by any Governmental Authority pursuant to Environmental Laws.

 

1.1.106 Representatives ” means, with respect to any Person, the advisors, agents, consultants, directors, officers, management, employees, subcontractors, and other representatives, including accountants, auditors, financial advisors, lenders and lawyers of such Person.

 

1.1.107 Required Consents ” means the required non-governmental third party consents and all Governmental Authority approvals required in connection with the Transactions as set forth on Schedule 1.1.105.

 

1.1.108 Reserve Amount ” means the amount of $400,000, which shall be used by the Securityholder Representative for the purposes of (i) carrying out its duties as Securityholder Representative and (ii) as set forth in Section 2.9.

 

1.1.109 Securities ” means, with respect to a Person, (a) any capital stock, partnership or membership interest, unit of participation or other similar interest in such Person, and (b) any option, warrant, purchase right, conversion right, exchange right or other contractual obligation which would allow any other Person to acquire any such interest in such Person.

 

1.1.110 Securityholder Representative ” is defined in Section 2.12.

 

1.1.111 Sellers ” is defined in the recital of the Parties above.

 

1.1.112 Sellers’ Unvested Option Portion ” means an amount equal to 25% of the Unvested Option Amount.

 

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1.1.113 Sellers’ Expenses ” means, without duplication, all costs, fees and expenses incurred by or on behalf of the Corporation and the Subsidiary on or before the Closing (whether or not invoiced) in connection with the preparation, execution and consummation of this Agreement, any Transaction Document and the Transactions or the related solicitation of other potential acquirers for the Corporation and the Subsidiary, that remain outstanding as of immediately prior to the Closing, including (i) all costs, fees, disbursements and expenses (whether or not invoiced) that remain outstanding as of immediately prior to the Closing of attorneys, accountants, investment bankers and other advisors or service providers of the Corporation and/or the Subsidiary in connection with the Transactions including the unpaid fees and expenses of Gowling WLG (Canada) LLP and Jones Day LLP, and (ii) all unpaid change of control or transaction bonuses, severance or success, retention or other similar payments of the Equityholders, the Corporation or the Subsidiary that become due as a result of the Closing (whether paid on or following the Closing) to any member, officer, director, employee, consultant or contractor of the Equityholders, the Corporation or the Subsidiary (including any costs or fees) and any amounts payable to gross up or make whole any Person for income or excise Taxes imposed with respect to such amounts (excluding, for the avoidance of doubt, (A) payments arranged by the Buyer or any of its Affiliates or payments arising from employment or service of any such individual after the Closing, (B) the Vested Option Amount and (C) Unvested Option Amount) (all such amounts “ Sale Bonuses ”).

 

1.1.114 Seller Indemnitees ” means the Sellers and their respective heirs, executors, successors and assigns.

 

1.1.115 Shareholder Agreement ” means the Unanimous Shareholder Agreement dated May 31, 2013 among Peterson Partners, Martin Galligan, BMO Nesbitt Burns Inc. ITF Sandra K. Galligan, BMO Nesbitt Burns Inc. ITF Martin P. Galligan, BMO Nesbitt Burns Inc. ITF The Galligan Group Ltd., Sugnet and Varia.

 

1.1.116 Stock Option Plan ” means the Third Amended and Restated Stock Option Plan of the Corporation.

 

1.1.117 Straddle Period ” means any taxation period of the Corporation or a Subsidiary ending after the Closing Date which commenced before the Closing Date.

 

1.1.118 Stub Period Returns ” is defined in Section 6.3.

 

1.1.119 Subsidiary ” means Angoss Software Limited, a United Kingdom private limited company.

 

1.1.120 Sugnet ” means Sugnet Insurance Group, Inc.

 

1.1.121 Swartz ” means GTM Advantage 401K Plan, for the benefit of Gordon Swartz.

 

1.1.122 Tax ” or “ Taxes ” means all taxes, duties, fees, premiums, assessments, imposts, levies, rates, withholdings, dues, government contributions and other charges of any kind whatsoever imposed by any Governmental Authority, whether direct or indirect, including those levied on, or measured by, or referred to as income, gross income, profits, capital gains, alternative or add-on, or minimum, capital, transfer, land transfer, sales, retail sales, goods and services, harmonized sales, value-added, ad valorem, excise, stamp, non-resident withholding, employee withholding, employment, health, employer health, social services, and all contributions, premiums, surtaxes, all customs duties, import and export taxes, all provincial workers’ compensation payments, and all employment insurance, health insurance and Canada, Québec and other government pension plan contributions, and in all such cases together with all interest, penalties and fines applied thereon.

 

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1.1.123 Tax Law ” means any Law that imposes Taxes or that deals with the administration or enforcement of liabilities for Taxes.

 

1.1.124 Tax Return ” means any return, report, estimate, declaration, designation, election, undertaking, waiver, notice, filing, information return, statement, form, certificate or any other document or materials relating to Taxes, including any related or supporting information with respect to any of those documents or materials listed above in this Section 1.1.124, or amendments of (including refund claims with respect to) any of the foregoing, filed or to be filed with any Governmental Authority in connection with the determination, assessment, collection or administration of Taxes.

 

1.1.125 Third Party Claim ” is defined in Section 8.5.

 

1.1.126 Threshold ” is defined in Section 8.4.1.

 

1.1.127 Transaction Documents ” means this Agreement and the other agreements, certificates and documents identified as such on Schedule 1.1.124.

 

1.1.128 Undisputed Amounts ” is defined in Section 2.7.1.

 

1.1.129 Unvested Options ” means the Options granted, or agreed to be granted, by the Corporation on and after May 15, 2017 and identified as Unvested Options on Schedule 2.2.

 

1.1.130 Unvested Option Amount ” means the amount equal to the sum of all of the amounts to be paid to the holders of the Unvested Options as set forth in Schedule 2.2.

 

1.1.131 Varia ” means Hiten Varia.

 

1.1.132 Vested Options ” means the Options granted by the Corporation before May 15, 2017 and identified as Vested Options on Schedule 2.2.

 

1.1.133 Vested Option Amount ” means the amount equal to the sum of all amounts to be paid to the holders of the Vested Options under the applicable Stock Option Cancellation Agreements and as set forth on Schedule 2.2.

 

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1.1.134 Vested Majority Option Amount ” means the portion of the Vested Option Amount to be paid to the Majority Optionholders, as adjusted after the Closing pursuant to Section 2.8.

 

1.2 Certain Rules of Interpretation

 

1.2.1 In this Agreement, words signifying the singular number include the plural and vice versa, and words signifying gender include all genders. Every use of the words “including” or “includes” in this Agreement is to be construed as meaning “including, without limitation” or “includes, without limitation”, respectively.

 

1.2.2 The division of this Agreement into Articles and Sections, the insertion of headings and the inclusion of a table of contents are for convenience of reference only and do not affect the construction or interpretation of this Agreement.

 

1.2.3 References in this Agreement to an Article, Section, Schedule or Exhibit are to be construed as references to an Article, Section, Schedule or Exhibit of or to this Agreement unless otherwise specified. The words “hereof,” “herein,” “hereto,” “hereunder,” “hereby” and other similar expressions refer to this Agreement as a whole and not to any particular section or portion of it. All terms defined in this Agreement shall have the defined meanings contained herein when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.

 

1.2.4 Unless otherwise specified in this Agreement, time periods within which or following which any calculation or payment is to be made, or action is to be taken, will be calculated by excluding the day on which the period begins and including the day on which the period ends. If the last day of a time period is not a Business Day, the time period will end on the next Business Day.

 

1.2.5 Unless otherwise specified, any reference in this Agreement to any statute includes all regulations and subordinate legislation made under or in connection with that statute at any time, and is to be construed as a reference to that statute as amended, modified, restated, supplemented, extended, re-enacted, replaced or superseded at any time.

 

1.2.6 Where the word “consolidated” is used in this Agreement, it refers to “the Corporation and its Subsidiary on a consolidated basis.”

 

1.3 Governing Law

 

This Agreement is governed by, and is to be construed and interpreted in accordance with, the Laws of the Province of Ontario and the Laws of Canada applicable in that Province, without reference to the conflict of laws principles of such jurisdiction that may refer the governance, construction or interpretation of the Agreement to the Laws of another jurisdiction.

 

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1.4 Entire Agreement; Integration; Schedules

 

This Agreement, the Disclosure Schedule and Exhibits attached hereto, the Non-Disclosure Agreement, and any other Transaction Document or other documents to be delivered at Closing under this Agreement, constitute the entire agreement between the Parties pertaining to the subject matter of this Agreement and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties including the Letter of Intent, and there are no representations, warranties or other agreements between the Parties, express or implied, in connection with the subject matter of this Agreement except as specifically set out in this Agreement or in any of the other Transaction Documents delivered at Closing under this Agreement. No Party has been induced to enter into this Agreement in reliance on any warranty, representation, opinion, advice or assertion of fact, except to the extent it has been reduced to writing and included as a term in this Agreement, the Disclosure Schedule and Exhibits attached hereto, the Non-Disclosure Agreement or in any of the other Transaction Documents.

 

1.5 Schedules and Exhibits

 

 Schedule

Subject Matter
A List of Sellers
B List of Majority Optionholders
1.1.94.4 Permitted Liens
1.1.105 Required Consents
1.1.124 Transaction Documents
2.1 Purchased Shares
2.2 Options
2.5 Payment Spreadsheet
2.11 Purchase Price and Working Capital Example
Article 4 Disclosure Schedule
Exhibit Subject Matter
7.1.5.1 Key Employees
7.1.7.4 Form of release by the Directors
7.1.7.5 Documentation for Options

 

Article 2
PURCHASE AND SALE

 

2.1 Agreement of Purchase and Sale

 

2.1.1 Subject to the terms and conditions of this Agreement, on the Closing Date, each of the Sellers will sell, transfer, assign and deliver to the Buyer, and the Buyer will purchase from such Seller, all of the outstanding capital stock of the Corporation owned by such Seller set forth on Schedule 2.1 (the “ Purchased Shares ”), free and clear of all Liens other than restrictions on transfer under applicable securities Laws.

 

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2.1.2 The acquisition of the Purchased Shares and the other transactions contemplated herein are collectively referred to as the “ Transactions .”

 

2.2 Purchase Price

 

2.2.1 The Buyer will pay the Purchase Price to the Sellers in accordance with Schedule 2.5 for the Purchased Shares.

 

2.3 Closing; Payments at Closing

 

2.3.1 Closing

 

The Closing will take place at the Closing Time on the Closing Date, after the conditions set forth in Article 7 are satisfied (other than those conditions that by their nature are normally satisfied at the Closing, but subject to the satisfaction of such conditions at the Closing) or waived, by delivery of all required documents by the Parties as required hereunder by electronic transmission or original and with all funds delivered by wire transfer all of which is delivered in escrow pending authorization of release.

 

2.3.2 Closing Procedures

 

At the Closing Time:

 

2.3.2.1 the Sellers will sell and the Buyer will purchase the Purchased Shares for the Purchase Price;

 

2.3.2.2 the Equityholders, the Corporation and the holders of Vested Options will deliver or cause to be delivered to the Buyer all documents referred to in Section 7.1.7;

 

2.3.2.3 the Buyer will deliver or cause to be delivered to the Securityholder Representative all documents referred to in Section 7.3.5; and

 

2.3.2.4 the Buyer will pay, or cause the payment of, by wire transfer of immediately available funds, the amounts set out in Section 2.3.3 to the corresponding recipients set out in Section 2.3.3.

 

2.3.3 Payments at Closing

 

The Buyer will, at the Closing Time, pay:

 

2.3.3.1 to the holders of Indebtedness, the amounts set forth in the payoff letters delivered to the Buyer pursuant to Section 2.5 in accordance with the wire transfer instructions contained in such payoff letters;

 

2.3.3.2 to the payees of the Sellers’ Expenses in accordance with the amounts and wire instructions delivered to the Buyer pursuant to Section 2.5;

 

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2.3.3.3 to the Corporation, the following amounts:

 

(a) an amount equal to the Unvested Option Amount, which amount shall be further distributed by the Corporation in accordance with Section 6.7; and

 

(b) an amount equal to the Vested Option Amount, which amount shall be further distributed by the Corporation in accordance with Section 6.7;

 

2.3.3.4 to the Securityholder Representative, the Reserve Amount less the aggregate amount of each Majority Optionholder’s Pro Rata Portion of the Reserve Amount, to be held in accordance with Sections 2.9 and 2.12;

 

2.3.3.5 to the Escrow Agent, the Escrow Fund less the aggregate amount of each Majority Optionholder’s Pro Rata Portion of the Escrow Fund, to be held in accordance with Section 2.13 and the Escrow Agreement; and

 

2.3.3.6 to the Securityholder Representative for payment to the Sellers in accordance with Schedule 2.5, an amount equal to (i) the Estimated Purchase Price, minus (ii) the amount paid under Section 2.3.3.4, and minus (iii) the amount paid under Section 2.3.3.5.

 

2.4 Intentionally Deleted.

 

2.5 Estimated Closing Date Statement

 

Not less than three Business Days before the Closing Date, the Corporation will deliver to the Buyer: (i) a certificate, executed by the chief financial officer of the Corporation and reasonably acceptable to Buyer, along with all working papers and necessary background documents, setting forth: (A) good faith estimates by the Corporation of the Cash, Indebtedness, Sellers’ Expenses, Current Assets and Current Liabilities (in each case, calculated as at the close of business on the Closing Date and in accordance with the definitions thereof) and, based on those estimates, a calculation of the: (B) Estimated Closing Date Working Capital; and (C) the Estimated Closing Date Net Indebtedness (together, the “ Estimated Closing Date Statement ”), (ii) Schedule 2.5 which shall set forth each Equityholder’s Pro Rata Portion of the Equityholder Consideration, Reserve Amount and Escrow Fund, (iii) a payoff letter from each holder of Indebtedness, in form and substance reasonably acceptable to the Buyer, (Y) indicating the amount required to discharge such indebtedness at Closing and (Z) including, if any such indebtedness is secured by any Liens, an undertaking by the holder(s) thereof to release such Liens upon receipt of the stated payoff amount; and (iv) final amounts and wire transfer instructions for the payees of Sellers’ Expenses. The Estimated Closing Date Statement will be prepared in accordance with the Accounting Principles.

 

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2.6 Closing Date Statement

 

Not later than 90 days after the Closing Date, the Buyer will cause to be prepared and delivered to the Securityholder Representative a certificate executed by the Buyer along with all working papers and necessary background documents, which will be prepared in accordance with the Accounting Principles (the “ Closing Date Statement ”), setting forth final calculations of the Cash, Indebtedness, Sellers’ Expenses, Current Assets, Current Liabilities, Actual Closing Date Working Capital and Actual Closing Date Net Indebtedness as of the close of business on the Closing Date. The Securityholder Representative may notify the Buyer that it accepts or disputes the Closing Date Statement at any time within 15 days after receiving it, but will be deemed to accept it on the 16 th day after receipt unless the Securityholder Representative delivers a written notice (the “ Dispute Notice ”) to the Buyer of a dispute (an “ Closing Date Statement Dispute ”) prior to that 16 th day. On the date of the Securityholder Representative’s deemed acceptance, or any earlier date upon which the Buyer receives notice of the Securityholder Representative’s acceptance, the Closing Date Statement will be presumed to be true and correct in all respects and will be final and binding on the Buyer and the Equityholders.

 

2.7 Disputes

 

2.7.1 Any Dispute Notice must set out the reasons for the Closing Date Statement Dispute, the amounts in dispute, together with reasonable supporting detail, and reasonable details of the calculation of those amounts. The Buyer and the Securityholder Representative will attempt, in good faith, to resolve the Closing Date Statement Dispute within 20 days after the Buyer’s receipt of the Dispute Notice. Any Closing Date Statement Dispute not resolved by the Buyer and the Securityholder Representative within that period (“ Disputed Amounts ” and any amounts not so disputed, the “ Undisputed Amounts ”), shall be submitted for resolution to an impartial nationally recognized firm of independent chartered professional accountants mutually agreeable to the Buyer and the Securityholder Representative other than a firm with which the Corporation, the Securityholder Representative or the Buyer has material relations (the “ Independent Accountant ”) who, acting as experts and not arbitrators, shall (i) address only the Disputed Amounts that remain in dispute and are submitted to the Independent Accountant, (ii) provide each of the Buyer and the Securityholder Representative with the same opportunity to present their respective positions and submit materials regarding their proposed amounts for such Disputed Amounts to the Independent Accountant, (iii) base its determination for each of the submitted Disputed Amounts solely on the submissions of the parties and the relevant definitions and Accounting Principles contained herein, and (iv) re-calculate the Equityholder Consideration and the Closing Date Statement, as modified only by the Independent Accountant’s resolution of the Disputed Amounts.

 

2.7.2 The fees and expenses of the Independent Accountant shall be paid by Equityholders, on the one hand, and by Buyer, on the other hand, based upon the percentage that the amount actually contested but not awarded to Equityholders or Buyer, respectively, bears to the aggregate amount actually contested by Equityholders and Buyer .

 

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2.7.3 The Independent Accountant shall make a determination as soon as practicable, but no later than 45 days (or such other time as the parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed Amounts and their adjustments to the Closing Date Statement, the Actual Closing Date Working Capital, the Actual Closing Date Net Indebtedness, Sellers’ Expenses and/or the Equityholder Consideration shall be final, conclusive and binding upon the Parties and not subject to appeal.

 

2.8 Equityholder Consideration Adjustment

 

2.8.1 On the date on which the Parties agree to the Closing Date Statement, or, if there is a Closing Date Statement Dispute, on the date on which a determination of a Closing Date Statement Dispute is made pursuant to Section 2.7, the Equityholder Consideration will be adjusted as follows:

 

2.8.1.1 Closing Date Net Indebtedness

 

(a) if the Actual Closing Date Net Indebtedness is greater than (for clarity, is a less negative (or more positive) amount than) the Estimated Closing Date Net Indebtedness, decreased by an amount equal to the difference between the Actual Closing Date Net Indebtedness and the Estimated Closing Date Net Indebtedness;

 

(b) if the Actual Closing Date Net Indebtedness is less than (for greater clarity, is more negative (or less positive) amount than) the Estimated Closing Date Net Indebtedness, increased by an amount equal to the difference between the Estimated Closing Date Net Indebtedness and the Actual Closing Date Net Indebtedness; or

 

(c) if the Actual Closing Date Net Indebtedness is equal to the Estimated Closing Date Net Indebtedness, no adjustment shall be made; and

 

2.8.1.2 Closing Date Working Capital

 

(a) if the Actual Closing Date Working Capital is greater than (for greater clarity, is more positive (or less negative) than) the Estimated Closing Date Working Capital, increased by an amount equal to the difference between the Actual Closing Date Working Capital and the Estimated Closing Date Working Capital;

 

(b) if the Actual Closing Date Working Capital is less than (for greater clarity, is less positive (or more negative) than) the Estimated Closing Date Working Capital, decreased by an amount equal to the difference between the Estimated Closing Date Working Capital and the Actual Closing Date Working Capital; or

 

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(c) if the Actual Closing Date Working Capital is equal to the Estimated Closing Date Working Capital, no adjustment shall be made; and

 

2.8.1.3 Sellers’ Expenses

 

(a) if the actual amount of Sellers’ Expenses as set forth in the Closing Date Statement (“ Actual Sellers’ Expenses ”) is greater than the estimated amount of Sellers’ Expenses set forth in the Estimated Closing Date Statement (“ Estimated Sellers’ Expenses ”), decreased by an amount equal to the difference between the Actual Sellers’ Expenses and the Estimated Sellers’ Expenses;

 

(b) if the Actual Sellers’ Expenses is less than the Estimated Sellers’ Expenses, increased by an amount equal to the difference between the Estimated Sellers’ Expenses and the Actual Sellers’ Expenses; or

 

(c) if the Actual Sellers’ Expenses is equal to the Estimated Sellers’ Expenses, no adjustment shall be made.

 

2.9 Equityholder Consideration Adjustment Payment

 

2.9.1 If the Equityholder Consideration adjustments made pursuant to Section 2.8 result in:

 

2.9.1.1 a net increase to the Equityholder Consideration, the Buyer shall promptly pay: (i) an aggregate amount equal to the Sellers’ Pro Rata Portion of that net increase to the Securityholder Representative, and the Securityholder Representative shall distribute such amount directly to the Sellers and (ii) an aggregate amount equal to the Majority Optionholders’ Pro Rata Portion of that net increase to the Corporation and the Corporation shall further distribute the applicable amount to the Majority Optionholders in accordance with its regular payroll procedures, in each case in accordance with the Pro Rata Portions of the Equityholders and less applicable Tax, employment-related or other withholdings; or

 

2.9.1.2 a net decrease to the Equityholder Consideration, Peterson Partners shall have a joint and several obligation, and each other Equityholder shall have a several obligation in accordance with its Pro Rata Portion, to promptly pay to the Buyer the amount of such net decrease, which payment shall be made from the Reserve Amount, and, if the Reserve Amount is insufficient, either (i) by the Equityholders or (ii) from the Escrow Fund (at the Buyer’s sole discretion).

 

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2.10 Manner of Payment; Exchange of Currency

 

2.10.1 Except as otherwise required herein, all payments required to be made to or to the order of a Party under this Article will be made by wire transfer to an account designated in writing by the Party entitled to receive the payment.

 

2.10.2 The Estimated Closing Date Statement and the Closing Date Statement shall be prepared in United States Dollars and any conversions from Canadian Dollars or UK Pounds Sterling shall, notwithstanding anything else in this Agreement, be converted at the applicable closing rate published by the Bank of Canada on Tuesday January 23, 2018 (available at https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates/).

 

2.11 Intentionally Deleted.

 

2.12 Appointment of Securityholder Representative

 

2.12.1 Each Equityholder, by virtue of the execution of this Agreement, hereby appoints Peterson Partners to be the appointed attorney-in-fact, and authorized and empowered to act, for and on behalf of any or all of the Equityholders, for all matters arising out of or relating to this Agreement generally, and such other matters as are reasonably necessary for the consummation of the Transactions including (i) to review all determinations of the adjustments to the Equityholder Consideration in this Article 2 and, to the extent deemed appropriate, dispute, question the accuracy of, compromise, settle or otherwise resolve any and all such determinations; (ii) to receive any payments on behalf of the Equityholders in accordance with the terms of this Article 2, or disburse payments to the Equityholders in accordance with Schedule 2.5; (iii) agree to, negotiate, enter into settlements and compromises of and comply with orders of courts and awards of arbitrators with respect to any Indemnity Claim; (iv) resolve any Indemnity Claims; (v) appoint any arbitrator and conduct any arbitration with respect to this Agreement; (vi) to enforce or waive any representation, warranty or covenant or condition of the Buyer hereunder; (vii) to execute and deliver on behalf of the Equityholders any documents or agreement contemplated by or necessary or desirable in connection with this Agreement; and (viii) to take such further actions, including coordinating and administering post-closing matters related to the rights and obligations of the Equityholders, as are authorized in this Agreement (the above named representative, as well as any subsequent representative of the Equityholder appointed by Equityholders who, immediately prior to Closing, held a majority of outstanding Preferred Shares being referred to herein as the “ Securityholder Representative ”) provided that, notwithstanding the above, the Securityholder Representative shall have no authority nor be empowered to act for and on behalf of an Equityholder, in any manner whatsoever, in respect of an Indemnity Claim with respect to an Individual Representation. For greater certainty, each Equityholder specifically acknowledges that the Securityholder Representative is authorized to bind the Equityholders to make monetary payments in order to give effect to the provisions of this Section 2.12 and the provisions of this Agreement. Each of the Buyer and the Escrow Agent shall be entitled to rely on any decision, action, consent or instruction of the Securityholder Representative as being the decision, action, consent or instruction of each and every Equityholder, and each of the Buyer and the Escrow Agent are hereby relieved from any liability to any Person for acts done by them in accordance with any such decision, act, consent or instruction.

 

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2.12.2 Each Equityholder agrees to indemnify and hold harmless the Securityholder Representative from any liabilities it may incur arising out of or relating to any action or inaction in its capacity as the Securityholder Representative, unless such action or omission results from or arises out of gross negligence or willful misconduct on the part of the Securityholder Representative.

 

2.12.3 Each Equityholder will be bound by all actions taken by the Securityholder Representative in connection with this Agreement, and the Buyer shall be entitled to rely on such appointment and any action or decision of the Securityholder Representative.

 

2.12.4 The grant of authority provided for in this Section 2.12 (i) is coupled with an interest and will be irrevocable and survive the death, incompetency, bankruptcy, liquidation, merger or change of control of any Equityholder, and (ii) may be exercised by the Securityholder Representative acting by signing as Securityholder Representative of any Equityholder.

 

2.12.5 The Securityholder Representative is hereby authorized to establish an account for the purposes of holding the Reserve Amount. The Securityholder Representative may use the Reserve Amount to pay any amounts owed pursuant to Section 2.9 or any fees, costs, expenses or other obligations incurred by the Securityholder Representative in connection with the matters described in this Section 2.12. No interest or earnings will be paid on the Reserve Amount. The Securityholder Representative will not be liable for any loss of principal of the Reserve Amount other than as a result of its gross negligence or willful misconduct. Except as set forth in Section 2.9, the Reserve Amount shall be retained in whole or in part by the Securityholder Representative for such time as the Securityholder Representative shall determine in its sole discretion; provided, however, that the Securityholder Representative may not distribute any portion of the Reserve Amount to the Equityholders prior to the final determination of the Equityholder Consideration pursuant to Section 2.8. Subject to the preceding sentence, if the Securityholder Representative shall determine in its sole discretion to return all or any portion of the Reserve Amount, such amount shall be distributed in accordance with the Equityholders’ Pro Rata Portions.

 

2.13 Escrow Fund

 

2.13.1 The Escrow Fund will be held in escrow until the date that is 18 months from the Closing Date (the “ Escrow Release Date ”), unless released earlier or retained longer in accordance with the provisions of this Section 2.13 and the Escrow Agreement.

 

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2.13.2 Upon the final determination in accordance with this Agreement of any Indemnity Claim of the Buyer Indemnitees, the Buyer and the Securityholder Representative shall jointly instruct the Escrow Agent to release from escrow and pay to the Buyer an amount of the Escrow Fund equal to the amount of such finally determined Indemnity Claim.

 

2.13.3 On the Escrow Release Date, the Buyer and the Securityholder Representative shall jointly instruct the Escrow Agent to release from escrow and pay to the Securityholder Representative all of the Escrow Fund remaining in escrow on such date, and the Securityholder Representative shall distribute such amount to the Equityholders in accordance with the Pro Rata Portions of the Equityholders.

 

2.13.4 If on the Escrow Release Date there is an outstanding Indemnity Claim of the Buyer Indemnitees that has not been finally determined pursuant to this Agreement, then the amount of such Indemnity Claim (the “ Undetermined Escrow Amount ”) shall not be released from escrow and paid to the Securityholder Representative pursuant to Section 2.13.3 (but, for greater certainty, the remainder of the Escrow Fund shall be so paid). The Undetermined Escrow Amount shall remain in escrow until the applicable Indemnity Claim is finally determined pursuant to this Agreement, at which point an amount of the Escrow Fund equal to the amount of such finally determined Indemnity Claim shall be released from escrow and paid to the Buyer pursuant to 2.13.2 and any amount of the Escrow Fund remaining shall be released from escrow and paid to the Securityholder Representative pursuant to Section 2.13.3.

 

Article 3
REPRESENTATIONS AND WARRANTIES OF THE SELLERS

 

Each Seller severally and individually (and not jointly) represents and warrants to the Buyer that the statements in this Article 3 are true and correct as of the Closing Time.

 

3.1 Organization and Authority of Seller; Title to Shares

 

3.1.1 With respect to any Seller that is not a natural person, such Seller is an entity duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized. Each Seller has full power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. With respect to any Seller that is a natural person, such Seller has all requisite legal power to enter into this Agreement and the other Transaction Documents to which such Seller is a party, to carry out its obligations hereunder and to consummate the Transactions contemplated hereby and thereby.

 

3.1.2 The execution and delivery by each Seller of this Agreement and each of the other Transaction Documents, the performance by such Seller of its obligations hereunder and thereunder, and the consummation by such Seller of the Transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of such Seller. This Agreement has been duly executed and delivered by each Seller, and (assuming due authorization, execution and delivery by the Buyer) this Agreement constitutes a legal, valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms, subject to: (i) Laws of general application relating to bankruptcy, insolvency, reorganization, moratorium and other Laws affecting enforcement of creditors’ rights generally, and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies (collectively, the “ Remedies Exception ”).

 

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3.1.3 Each Seller is the owner of record and beneficially, free and clear of all Liens (other than restrictions on transfers under applicable securities Laws), of the number of Purchased Shares listed as being owned by such Seller on Schedule 2.1. None of such Seller’s Shares were issued in violation of any agreement, arrangement or commitment to which such Seller is a party or, at the time of Closing, will be subject to or in violation of any preemptive or similar rights of any Person. Upon the consummation of the Transactions, the Buyer will acquire valid title to the Purchased Shares of such Seller.

 

3.2 No Conflicts; Consents; Litigation

 

3.2.1 The execution, delivery and performance by each Seller of this Agreement and the other Transaction Documents to which such Seller is a party do not and, the consummation of the transactions contemplated hereby and thereby, will not: (i) conflict with or result in a violation or breach of, or default under, any provision of the Constating Documents of such Seller; (ii) conflict with or result in a violation or breach of any provision of any Law or order of a Governmental Authority applicable to such Seller; (iii) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which such Seller is a party or by which such Seller is bound or to which any of such Seller’s properties and assets are subject; or (iv) result in the creation or imposition of any Liens on any of the Purchased Shares owned by such Seller.

 

3.2.2 No consent, approval, Permit, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to such Seller in connection with the execution and delivery of this Agreement or the other Transaction Documents to which such Seller is a party by such Seller and the consummation of the Transactions contemplated hereby and thereby.

 

3.2.3 There are no Claims pending or, the Knowledge of such Seller, threatened (a) against such Seller affecting the Purchased Shares; or (b) against such Seller that challenges or seeks to prevent, enjoin or otherwise delay the Transactions contemplated by this Agreement or the other Transaction Documents to which such Seller is a party.

 

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3.3 Tax

 

3.3.1 Each Seller is a non-resident of Canada for purposes of the ITA.

 

3.3.2 The Seller’s Purchased Shares are not, and are not deemed to be, “taxable Canadian property”, as that term is defined in ITA.

 

Article 4
REPRESENTATIONS AND WARRANTIES OF THE corporation

 

The Corporation represents and warrants to the Buyer that the statements contained in Article 4 are true and correct as at the Closing Time. Each exception to the following representations and warranties that is set out in the disclosure schedule attached as Schedule 4 (the “ Disclosure Schedule ”) is identified by reference to one or more specific individual Sections of this Agreement, unless it is reasonably apparent on its face that the disclosures on such reference apply to other representations and warranties.

 

4.1 Corporate Existence of Corporation and Subsidiary

 

Each of the Corporation and the Subsidiary is a corporation duly formed and organized and is validly existing and in good standing as a corporation in its jurisdiction of incorporation. No proceedings have been taken or authorized by the Corporation or the Subsidiary in respect of the bankruptcy, insolvency, liquidation, dissolution or winding up of the Corporation or the Subsidiary.

 

4.2 Validity and Enforceability

 

The execution and delivery by the Corporation and the Subsidiary of this Agreement and each of the other Transaction Documents, as applicable, the performance by the Corporation and the Subsidiary of their respective obligations hereunder and thereunder, and the consummation by the Corporation and the Subsidiary of the Transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of the Corporation and the Subsidiary. This Agreement has been duly executed and delivered by the Corporation, and (assuming due authorization, execution and delivery by the Buyer) this Agreement constitutes a legal, valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, subject to the Remedies Exception.

 

4.3 No Conflict; Regulatory Approvals

 

The execution, delivery and performance of this Agreement and the other Transaction Documents by the Corporation and the Subsidiary, as applicable, will not (a) result in any violation of, be in conflict with or constitute a default under the Constating Documents, or (b) result in any violation of, be in conflict with or constitute a default under any Law. No Permit or authorization, approval, order, consent of, or filing with, any Governmental Authority is required on the part of the Corporation or the Subsidiary in connection with the execution, delivery and performance of this Agreement or any other Transaction Documents and agreements to be delivered under this Agreement.

 

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4.4 Consents

 

Except as set out in Section 4.4 of the Disclosure Schedule, there is no requirement to obtain any consent, approval or waiver of a party under any Material Contract to which the Corporation or the Subsidiary is a party in order to complete the Transactions contemplated by this Agreement. Except as set out in Section 4.4 of the Disclosure Schedule, none of the execution and delivery of this Agreement, the other Transaction Documents or the completion of the Transactions contemplated hereby and thereby will constitute an event which would result (with or without notice or lapse of time) in the loss of a material benefit under any material Permit or Material Contract, give rise to any Lien (other than Permitted Liens), or permit any party to any Material Contract with the Corporation or the Subsidiary to amend, cancel, terminate or sue for damages with respect to that Material Contract, or to accelerate the maturity of any Indebtedness of the Corporation or the Subsidiary, or other obligation of the Corporation or the Subsidiary under that Material Contract.

 

4.5 Constating Documents

 

The Constating Documents made available to the Buyer in the Data Room constitute all of the charter documents of the Corporation and the Subsidiary and are in full force and effect; no action has been taken to further amend the Constating Documents and no changes to the Constating Documents are planned.

 

4.6 Capacity and Powers of Corporation and Subsidiary; Due Authorization

 

The Corporation and the Subsidiary has all necessary corporate power, authority and capacity to own or lease its respective assets and to carry on its Business as currently being conducted. The Corporation and the Subsidiary have the corporate power and authority and have taken all required corporate action on their part necessary to permit them to execute and deliver and to carry out the terms of this Agreement and the other Transaction Documents of the Corporation and the Subsidiary contemplated hereby.

 

4.7 Jurisdictions

 

The Disclosure Schedule lists every jurisdiction in which the Corporation and the Subsidiary is qualified to do business. Neither the character nor location of the Business conducted by the Corporation or the Subsidiary requires qualification to do business in any other jurisdiction.

 

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4.8 Authorized and Issued Capital

 

The authorized capital of the Corporation consists of an unlimited number of common shares and an unlimited number of Preference Shares issuable in Series including an unlimited number of Series 1 Convertible Preferred Shares (“ Preferred Shares ”), of which no common shares and 10,068,174 Series 1 Convertible Preferred Shares are issued and outstanding. All such Preferred Shares have been duly authorized and validly issued fully paid and are non-assessable. The offer, issuance and sale by the Corporation of all outstanding Securities of the Corporation complied in all material respects with all applicable securities Laws and preemptive rights. Other than the Shareholder Agreement or as set forth in Section 4.8 of the Disclosure Schedule, the Corporation is not a party to any agreements relating to the acquisition, disposition, voting or registration of any of the Preferred Shares or other Securities of the Corporation. There are no outstanding stock appreciation, phantom stock, profit participation rights or similar rights with respect to the Corporation. There are no Securities of the Corporation outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any other securities of the Corporation or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase any Securities of the Corporation. There are no authorized or outstanding bonds, debentures, notes or other Indebtedness of the Corporation which have the right to vote (or which are convertible into, or exchangeable for, Securities having the right to vote) on any matters on which equityholders of the Corporation are entitled to vote. There are no declared or accrued and unpaid distributions with respect to any Securities of the Corporation.

 

4.9 Subsidiary and Investments

 

4.9.1 The Disclosure Schedule sets out the following information with respect to the Subsidiary: (i) the number and type of its outstanding securities and a list of registered holders of such securities; and (ii) its jurisdiction of incorporation, organization or formation.

 

4.9.2 The Corporation is owner of record and beneficially of all of the outstanding common shares or other securities of the Subsidiary, free and clear of any Liens, all such shares or other securities so owned by the Corporation have been validly issued and are fully paid and non-assessable and no such shares or Securities have been issued in violation of any pre-emptive, subscription or similar rights of any other Person. Except for the shares or interests owned by the Corporation in the Subsidiary, the Corporation does not own, of record or beneficially, any material equity interests of any kind in any other Person.

 

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4.9.3 The common shares or other Securities of the Subsidiary are not subject to, and were not issued in violation of, any outstanding options, warrants, convertible or exchangeable securities or other rights that would obligate the Subsidiary to issue any of its Securities to any other Person. The offer, issuance and sale of all outstanding Securities of the Subsidiary complied in all material respects with all applicable securities Laws and preemptive rights. There are no agreements to which the Corporation or the Subsidiary are party relating to the acquisition, disposition, voting or registration of any of the Securities of the Subsidiary. There are no outstanding equity appreciation, phantom equity rights, profit participation rights or similar rights with respect to the Subsidiary. There are no proxies or agreements to which the Corporation or the Subsidiary is a party relating to the acquisition, disposition, voting or registration of any Securities of the Subsidiary. No Person (other than the Corporation) has any right of first offer, right of first refusal or preemptive right in connection with any future offer, sale or issuance of Securities by the Subsidiary. There are no Securities of the Subsidiary outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any other Securities of the Subsidiary or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase any Securities of the Subsidiary to any Person (other than the Corporation). There are no authorized or outstanding bonds, debentures, notes or other indebtedness of the Subsidiary which have the right to vote (or which are convertible into, or exchangeable for, Securities having the right to vote) on any matters on which equityholders of the Subsidiary are entitled to vote. There are no declared or accrued and unpaid distributions with respect to any Securities of the Subsidiary.

 

4.10 Options

 

4.10.1 Other than (i) the Options; (ii) this Agreement; or (iii) the Shareholder Agreement, neither the Corporation nor the Subsidiary is party to any written or oral agreement or option or any right or privilege (whether by Law, pre-emptive, contractual or otherwise) capable of becoming an agreement or option, including securities, warrants or convertible obligations of any nature, for:

 

4.10.1.1 the purchase of any Securities of the Corporation or the Subsidiary; or

 

4.10.1.2 the purchase of any of the assets of the Corporation or the Subsidiary other than in the Ordinary Course.

 

4.11 Corporate Records

 

The corporate records and minute books of the Corporation and the Subsidiary have been made available to the Buyer. There are no minutes of meetings of, or written resolutions passed by, the directors and shareholders of the Corporation and the Subsidiary other than those that are contained in such corporate records and minute books.

 

4.12 Books and Records

 

All material financial transactions of the Corporation and the Subsidiary have been accurately recorded in the Books and Records.

 

4.13 Financial Statements

 

Copies of the Financial Statements have been made available to the Buyer. The Financial Statements: (i) have been prepared in all material respects based upon the information contained in the Books and Records of the Corporation and the Subsidiary (except as may be indicated in the notes thereto), (ii) have been prepared in accordance with GAAP applied on a basis consistent with prior periods and the Accounting Principles, and (iii) present fairly in all material respects:

 

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4.13.1 the assets, liabilities and the financial condition of the Corporation and the Subsidiary (taken as a whole), on a consolidated basis, as at the respective dates of the Financial Statements in accordance with GAAP; and

 

4.13.2 the sales, earnings and results of the operations of the Corporation and the Subsidiary (taken as a whole), on a consolidated basis, during the periods covered by the Financial Statements in accordance with GAAP,

 

but the unaudited interim consolidated financial statements:

 

4.13.3 do not contain all notes required under GAAP; and

 

4.13.4 are subject to normal year-end audit adjustments, which changes shall be, individually and in the aggregate, not material to the Corporation and the Subsidiary, taken as a whole.

 

The Corporation and the Subsidiary maintain a system of internal accounting controls, reasonable for a company of the size and complexity of the Corporation and the Subsidiary, designed to provide reasonable assurance that (i) transactions of the Corporation and the Subsidiary are executed in accordance with management’s general or specific authorizations; (ii) transactions of the Corporation and the Subsidiary are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; and (iii) access to assets of the Corporation and the Subsidiary is permitted only in accordance with management’s general or specific authorization. The Corporation is in material compliance with its system of internal control.

 

4.14 Tax Matters

 

4.14.1 Except as disclosed in the Disclosure Schedule:

 

4.14.1.1 all Tax Returns required by applicable Tax Law to be filed on or prior to the Closing Date by or on behalf of the Corporation and the Subsidiary have been duly filed on a timely basis in compliance with their due dates under applicable Tax Law with the appropriate Governmental Authorities on or before the Closing Date. Each of those Tax Returns is true, correct and complete in all material respects and none of them has been amended;

 

4.14.1.2 the Corporation and the Subsidiary has duly, and on a timely basis, paid or remitted all Taxes required to be paid or remitted by it on or before the Closing Date, including all Taxes shown as due and owing on all Tax Returns, all Taxes whether or not they have been assessed or reassessed by any Governmental Authority, all Taxes held in trust or deemed to be held in trust for any Governmental Authority, and all installments on account of Taxes for the current year. Neither the Corporation nor the Subsidiary will have any liability for Taxes for any period ending on or before the Closing Date, or that portion of any Straddle Period up to and including the Closing Date, other than those liabilities for Taxes taken into account in Current Liabilities and Actual Closing Date Working Capital. The liabilities reflected as reserves for Taxes on the Financial Statements and in the Closing Date Statement are and will be sufficient for the payment or remittance of all Taxes which may become payable or remittable by the Corporation and the Subsidiary, whether or not disputed, in respect of any period ending on or before the Closing Date, or that portion of any Straddle Period up to and including the Closing Date;

 

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4.14.1.3 there are no liens for Taxes on any of the properties or assets of any of the Corporation or the Subsidiary;

 

4.14.1.4 neither the Corporation nor the Subsidiary has requested, executed, received, or entered into any Contract relating to any waiver, which is still outstanding and which provides for any extension of time in respect of: (i) the assessment, reassessment or collection of any Taxes by any Governmental Authority; (ii) the filing of any Tax Returns in respect of any Taxes for which the Corporation or the Subsidiary is or may be liable; or (iii) the payment or remittance of any Taxes or amounts on account of Taxes;

 

4.14.1.5 neither the Corporation nor the Subsidiary has requested, executed, received, or entered into any Contract with any Governmental Authority relating to the payment or remittance of any Taxes or amounts on account of Taxes;

 

4.14.1.6 neither the Corporation nor the Subsidiary has applied for or has obtained a ruling from any Governmental Authority (or other ruling comparable to a private letter ruling from the Internal Revenue Service);

 

4.14.1.7 neither the Corporation nor the Subsidiary has ever made any payments, is obligated to make any payments, or is a party to any agreement or arrangement that under certain circumstances could obligate it to make any payments that may not be deductible under Sections 280G, 404 or 162 of the IRC or has outstanding any capital stock that is subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the IRC;

 

4.14.1.8 neither the Corporation nor the Subsidiary is a party to any allocation, indemnity, sharing or similar agreement with respect to Taxes; and

 

4.14.1.9 neither the Corporation nor the Subsidiary is a party to any joint venture, partnership or other arrangement or contract that could be treated as a partnership for federal income tax purposes.

 

4.14.2 Neither the Corporation nor the Subsidiary has been required, or is currently required, to file any Tax Returns with any Governmental Authority outside Canada or outside the province of Ontario. No Claims have ever been made by any Governmental Authority that the Corporation or the Subsidiary is or may be subject to Tax in a jurisdiction where the Corporation and the Subsidiary do not file Tax Returns.

 

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4.14.3 There are no discussions, audits, assertions or Claims now pending, or to the Knowledge of the Corporation, threatened, in respect of Taxes due from or with respect to the Corporation or the Subsidiary. No Governmental Authority has challenged, disputed or questioned any Taxes of or any Tax Returns filed by the Corporation or the Subsidiary or indicated that an assessment, reassessment or determination in respect of Taxes is proposed.

 

4.14.4 All Taxes required to be deducted, withheld or remitted by the Corporation and the Subsidiary under any applicable Tax Law from amounts paid or credited by the Corporation or the Subsidiary to or for the account or benefit of any Person, including Taxes on payments to any of its present or former Employees, officers or directors and Taxes on payments to any Person who is a non-resident of Canada, have been properly deducted, withheld and remitted on a timely basis to the appropriate Governmental Authorities.

 

4.14.5 The Corporation is registered for purposes of the ETA and any other applicable commodity and sales taxes registrations. Each of the Corporation and the Subsidiary has complied on a timely basis with all registration, reporting, collection, remittance and other requirements in respect of all applicable commodity and sales taxes.

 

4.14.6 Each of the Corporation and the Subsidiary has made available to the Buyer true and complete copies (and such copies have been posted in the Data Room) of all Tax Returns, including all franchise, excise or sales Tax Returns for any periods which may still be assessed or reassessed by a Governmental Authority or for which Taxes may be collected by a Governmental Authority, together with all communications relating thereto from any Governmental Authority and the response, if any, of the Corporation or the Subsidiary, as the case may be, to such communication.

 

4.14.7 Neither the Corporation nor the Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period or portion thereof after the Closing Date as a result of any (i) installment sale or open transaction disposition occurring on or prior to the Closing Date, (ii) cash basis method of accounting or percentage of completion method of accounting, or (iii) prepaid amount received on or prior to the Closing Date.

 

4.14.8 None of sections 78, 80, 80.01, 80.02, 80.03 or 80.04 of the ITA, or any equivalent provision of similar Tax legislation of any province or any other jurisdiction, has applied or will apply to the Corporation or the Subsidiary at any time up to and including the Closing Date;

 

4.14.9 Neither the Corporation nor the Subsidiary has acquired property from a Person with whom it was not dealing at arm’s length, within the meaning of the ITA, for consideration, the value of which is less than the fair market value of the property acquired in circumstances which could subject it to a liability under section 160 of the ITA;

 

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4.14.10 The Corporation and the Subsidiary have complied with all of the requirements contained in section 247 of the ITA for any transactions between the Corporation or the Subsidiary and any Person not resident in Canada for the purposes of the ITA with whom the Corporation or the Subsidiary was not dealing at arm’s length;

 

4.14.11 The Corporation and the Subsidiary are each classified as an “association” taxable as a corporation for U.S. federal tax purposes under Treasury Regulation 301.7701-2(b).

 

4.14.12 Neither the Corporation nor the Subsidiary is a “controlled foreign corporation” as defined in Section 957(c) of the IRC or is a “passive foreign investment company” within the meaning of Section 1297 of the IRC.

 

4.14.13 Any royalties received by the Corporation are derived by the Corporation as licensor of: (i) property developed, created, or produced through the Corporation’s own officers or employees, and the Corporation is regularly engaged in the development, creation, or production of property of such kind; (ii) property acquired by the Corporation and to which the Corporation added substantial value to such property through its own officers or employees, and the Corporation is regularly engaged in the acquisition and addition of substantial value to property of such kind; or (iii) property that is licensed as a result of the performance of marketing functions by the Corporation through its own officers or employees (located outside of the United States), and the Corporation is regularly engaged in marketing property of such kind and the marketing function performed by the Corporation’s own officers or employees is substantial in relation to the royalties derived from the licensing of such property. For purposes of clause (iii) above, the marketing functions shall be considered substantial if the marketing expenses, other than payments made to agents or independent contractors, equals or exceeds 25% of the royalties derived from the licensing of such property.

 

4.14.14 Any royalties received by the Subsidiary are derived by the Subsidiary as licensor of: (i) property developed, created, or produced through the Subsidiary’s own officers or employees, and the Subsidiary is regularly engaged in the development, creation, or production of property of such kind; (ii) property acquired by the Subsidiary and to which the Subsidiary added substantial value to such property through its own officers or employees, and the Subsidiary is regularly engaged in the acquisition and addition of substantial value to property of such kind; or (iii) property that is licensed as a result of the performance of marketing functions by the Subsidiary through its own officers or employees (located outside of the United States), and the Subsidiary is regularly engaged in marketing property of such kind and the marketing function performed by the Subsidiary’s own officers or employees is substantial in relation to the royalties derived from the licensing of such property. For purposes of clause (iii) above, the marketing functions shall be considered substantial if the marketing expenses, other than payments made to agents or independent contractors, equals or exceeds 25% of the royalties derived from the licensing of such property.

 

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4.14.15 Neither the Corporation nor the Subsidiary is a “deferred foreign income corporation” with respect to any United States shareholders within the meaning of Section 965 of the IRC.

 

4.14.16 Less than 25% of the fair market value of the Corporation’s assets is attributable to shares of foreign affiliates that it directly or indirectly owns for purposes of the foreign affiliate dumping rules in section 212.3 of the ITA.

 

4.15 Absence of Undisclosed Liabilities

 

Except (i) Sellers’ Expenses, (ii) any liabilities incurred at the written request of the Buyer, (iii) to the extent adequately reserved against in the Financial Statements, or (iv) incurred subsequent to December 31, 2017 and:

 

4.15.1 disclosed in the Disclosure Schedule;

 

4.15.2 set out in the Estimated Closing Date Statement; or

 

4.15.3 incurred in the Ordinary Course,

 

neither the Corporation nor the Subsidiary has any material liabilities or obligations (whether accrued, absolute, contingent or otherwise, including under any guarantee of any Indebtedness) of a nature required by GAAP to be reflected or reserved against in a balance sheet.

 

4.16 Absence of Unusual Transactions

 

Except as set forth on the Disclosure Schedule and except for the Transactions, since December 31, 2017 the Corporation and the Subsidiary have:

 

4.16.1 conducted their respective business in all material respects only in the Ordinary Course;

 

4.16.2 not given any guarantee of any debt, liability or obligation of any Person;

 

4.16.3 not subjected any of its assets, or permitted any of its assets to be subjected, to any Lien other than the Permitted Liens;

 

4.16.4 not acquired, sold, leased, subleased, pledged, licensed, conveyed, assigned or otherwise disposed of or transferred any assets other than in the Ordinary Course;

 

4.16.5 not declared any cash dividend or distribution to the Sellers or redeemed, purchased or otherwise retired any of their respective shares or otherwise reduced their respective stated capital;

 

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4.16.6 not adopted a plan or agreement of liquidation, dissolution, restructuring, merger, amalgamation, consolidation or other reorganization;

 

4.16.7 not made any change in excess of $50,000 per year in any compensation arrangement or agreement with any Employee, officer, director or shareholder of the Corporation or the Subsidiary or agreed to any bonus, severance or change-of-control payment to any Employee, officer, director or shareholder of the Corporation or the Subsidiary, other than any bonus or severance payments in the Ordinary Course or any payment that will be included in the Closing Date Statement;

 

4.16.8 not made any material change to any Plan, other than any change required by any Law or any change arising from the annual renewal thereof in the Ordinary Course;

 

4.16.9 not canceled or waived any claims with a potential value in excess of $50,000, other than in the Ordinary Course;

 

4.16.10 not amended any material Tax Return, made or changed any material election in respect of Taxes, entered into any closing agreement, requested or received any ruling related to Taxes, settled any claim or assessment in respect of Taxes, surrendered any refund, consented to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, or incurred any liability for Taxes outside of the Ordinary Course;

 

4.16.11 not changed its fiscal year;

 

4.16.12 not experienced a Material Adverse Effect;

 

4.16.13 not made any change in any method of accounting or auditing practice; or

 

4.16.14 not agreed or offered to do any of the things described in this Section 4.16.

 

4.17 Title to Assets

 

Each of the Corporation and the Subsidiary owns, possesses and has good and marketable title to all of its property and assets, free and clear of all Liens other than Permitted Liens. Such property and assets of the Corporation and the Subsidiary, taken as a whole, are in good working condition (subject to normal wear and tear and routine maintenance in the Ordinary Course) and usable in the Ordinary Course and sufficient in the aggregate to conduct the business of the Corporation and the Subsidiary in all material respects as the same is conducted on the date of this Agreement.

 

4.18 Real Property

 

Neither the Corporation nor the Subsidiary own or has ever owned any real property.

 

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4.19 Leased Premises

 

The Disclosure Schedule lists the particulars of all Leases to which the Corporation or a Subsidiary is party. Each Lease is in full force and effect and the Corporation or the Subsidiary, as applicable, holds a valid and existing leasehold interest under each Lease, free and clear of all Liens other than Permitted Liens. To the Knowledge of the Corporation, the portion of the buildings leased by the Corporation or a Subsidiary, and the operation and maintenance thereof, comply in all material respects with all applicable Laws. Neither the Corporation and the Subsidiary nor, to the Knowledge of the Corporation, the landlord under any such Lease is in material default or breach of any such Lease and there does not exist under any such Lease any event which, with the giving of notice or the lapse of time (or both) would constitute such a material default or breach by the Corporation or the Subsidiary or, to the Knowledge of the Corporation, such other party. The Corporation has not been informed in writing or, to the Knowledge of the Corporation, orally that any lessor under any of the Leases has taken action in respect of any Lease or, to the Knowledge of the Corporation, threatened in writing to terminate any Lease before the expiration date specified in such Lease. Neither the Corporation nor the Subsidiary has leased or otherwise granted to any Person the right to use or occupy any Leased Premises or any portion thereof.

 

4.20 Intellectual Property

 

4.20.1 The Disclosure Schedule sets out an accurate and complete list and description of all Owned IP that is registered with any Governmental Authority (including details as to the jurisdictions, numbers, and expiry dates of all registrations), material Software that the Corporation and the Subsidiary owns or purports to own.

 

4.20.2 Other than the Corporation and the Subsidiary, there are no other owners of the Owned IP. The Owned IP is free and clear of any Liens, other than Permitted Liens, and none of the Owned IP is registered in the name of any Person other than the Corporation or a Subsidiary.

 

4.20.3 All current and former employees and consultants of the Corporation or the Subsidiary who assisted in the development of Owned IP have, by irrevocable written assignments, transferred to the Corporation or a Subsidiary all Intellectual Property Rights, and waived all moral rights, that any of them may have enjoyed with respect to any Owned IP to which they contributed. The Corporation is not aware that any of its officers, employees or consultants is in violation of such assignments or waivers. Neither the Corporation nor the Subsidiary uses any Intellectual Property of any of its current or former officers, employees and consultants made prior to or outside the scope of their employment or engagement by the Corporation, unless such Intellectual Property has been properly assigned in writing to the Corporation.

 

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4.20.4 Except for license agreements entered into with customers, distributors and resellers in the Ordinary Course and except for Permitted Liens, neither the Corporation nor the Subsidiary has assigned, licensed or otherwise granted any interest in any Owned IP to any other Person. The Disclosure Schedule contains a list of (i) all material licenses and other material rights or covenants not to sue granted by the Corporation and the Subsidiary to any third party with respect to any Owned IP, excluding products licensed by the Corporation or the Subsidiary to customers, distributors and resellers on a non-exclusive basis in the Ordinary Course; (ii) all licenses and other material rights or covenants not to sue granted by any third party to the Corporation or the Subsidiary with respect to any Licensed IP, excluding non-customized “off-the-shelf” computer software provided under “shrink wrap” or “click-thru” licenses to the Corporation or the Subsidiary which have fees of not more than $50,000 in any 12-month period; and (iii) Contracts pursuant to which any Owned IP is developed for or assigned to the Corporation or the Subsidiary by third parties (but not employees or consultants) (such contracts in this clause (iii), the “ IP Development Agreements ”, and together with the contracts in clauses (i) and (ii) collectively, the “ IP Agreements ”). Except as set forth in Section 4.20.4 of the Disclosure Schedule, neither the Corporation nor its Subsidiary has developed customized software for a customer, the Intellectual Property Rights to which the customer owns.

 

4.20.5 To the Knowledge of the Corporation, no Person is violating, infringing or misappropriating, and has violated, infringed or misappropriated, any Intellectual Property Right in any Owned IP. The Owned IP does not infringe the Intellectual Property Rights of any other Person. The Corporation and the Subsidiary are not violating, infringing or misappropriating, and have not violated, infringed or misappropriated, any Intellectual Property of any other Person. Since January 1, 2015 (the “ Reference Date ”), neither the Corporation nor the Subsidiary has received any written or, to the Knowledge of the Corporation, oral notice from any Person claiming any violation, infringement or misappropriation by the Corporation or the Subsidiary of another Person’s Intellectual Property Rights (including any demands or unsolicited “offers” to license Intellectual Property from another Person). No written claims are pending or, to the Knowledge of the Corporation, threatened against the Corporation or the Subsidiary by any Person regarding the use or ownership of any Owned IP, or challenging or questioning the validity or enforceability of any Owned IP.

 

4.20.6 All Intellectual Property Rights relating to Owned IP registered with a Governmental Authority are valid, enforceable, and in full force and effect (provided that no representation is made as to whether patents or trademarks will be issued from applications filed or the scope thereof) and all required registration or other fees have been paid to maintain them in good standing in those jurisdictions where registrations have been made.

 

4.20.7 The Corporation and the Subsidiary, as applicable, has entered into written agreements pursuant to which the Corporation or the Subsidiary has been granted a license to use and exploit the Licensed IP to the extent required to conduct all material aspects of its Business as it is currently conducted (including, if required, the right to incorporate the Licensed IP into the Owned IP) (the “ Licence Agreements ”). All Licence Agreements are in full force and effect and none of the Corporation or the Subsidiary or, to the Knowledge of the Corporation, any licensor is in default of its material obligations under any Licence Agreement.

 

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4.20.8 Except as set forth in Section 4.20.8 of the Disclosure Schedule, no Owned IP or software owned or purported to be owned by the Corporation or the Subsidiary (the “ Software ”) is subject to, incorporates, contains, distributed with, or is derived from any software that is subject to any Open Source License. “ Open Source License ” means any license that requires, as a condition of use, reproduction, modification, or distribution of software subject to such license, that such software or other software combined or distributed with or derived from such software (or any modifications or derivative works thereof) be disclosed, licensed, distributed in source code form (or that the source code for such software be made available or offered to be made available) and/or on a royalty-free basis (including for the purpose of making additional copies or derivative works) or granted to any Person certain rights or immunities under any such software or other Intellectual Property. No Owned IP has become licensed under the terms of any Open Source License through combination with third party software subject to the terms of an Open Source License or otherwise and none of the foregoing will occur as a result of the execution, delivery and performance of this Agreement and the other Transaction Documents or the consummation of the Transactions.

 

4.20.9 (i) Except as set forth on the Disclosure Schedule, neither the Corporation nor the Subsidiary has provided and is not obligated to provide the source code for any of its Software (the “ Corporation Source Code ”) to any other Person; (ii) the Corporation and the Subsidiary have possession of all Corporation Source Code and all documentation related thereto, there has been no disclosure of any Corporation Source Code to any other Person outside of the scope of a written agreement that protects the confidentiality thereof and the Corporations’ and the Subsidiary’s rights therein, and except as set forth on the Disclosure Schedule, no Person other than the Corporation and the Subsidiary has rights in any Corporation Source Code; (iii) no Person other than the Corporation and the Subsidiary will be entitled to obtain possession of any Corporation Source Code or access thereto as a result of the execution, delivery and performance of this Agreement and the other Transaction Documents or the consummation of the Transactions.

 

4.20.10 The Corporation and the Subsidiary have complied in all material respects and are in compliance in all material respects with all applicable Laws governing the collection, storage, transfer and use of any Personal Information. The Corporation and the Subsidiary have a privacy policy regarding the collection, storage, transfer and use of Personal Information (the “ Privacy Policy ”), a true and complete copy of which has been made available to the Buyer, and the Corporation and the Subsidiary have complied and are in compliance in all material respects with such Privacy Policy. The Corporation and the Subsidiary have commercially reasonable security measures in place to protect Personal Information collected by it from and against unauthorized access, use and/or disclosure. To the Knowledge of the Corporation, no Person has gained unauthorized access to or made unauthorized use of any Personal Information maintained by the Corporation or the Subsidiary. The execution, delivery and performance of this Agreement and the other Transaction Documents and the consummation of the Transactions do not violate the Privacy Policy as it currently exists or as it existed at any time during which any Personal Information was collected or obtained by the Corporation or the Subsidiary.

 

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4.20.11 The Software, computer systems and other technology used in the Business of the Corporation and the Subsidiary (collectively, “ Corporation IT Assets ”) (i) perform in material conformance with their documentation, (ii) to the Knowledge of the Corporation are free from any material defect, and (iii) to the Knowledge of the Corporation do not contain any virus, software routine or hardware component designed to permit unauthorized access or to disable or otherwise harm any computer, systems or software, or any Software routine designed to disable a computer program automatically with the passage of time or under the positive control of a Person other than an authorized licensee or owner of the Software. There has been no material failure of any Corporation IT Assets since the Reference Date which has not been fully resolved, and neither the Corporation nor the Subsidiary has experienced any breach of security or unauthorized access of any Corporation IT Assets or the data or information stored thereon. The Corporation and the Subsidiary have taken commercially reasonable precautions to preserve the availability, security and integrity of all Corporation IT Assets and to monitor and control the security of its data and information. The Corporation and the Subsidiary have established policies and procedures (and are in compliance in all material respects with such policies and procedures) to provide for the continuity and integrity of the services provided by the Corporation and the Subsidiary and the back-up and recovery of data and information stored or contained or processed by the Corporation with regard to disaster recovery and business continuity, and true and complete copies of such policies and procedures have been made available to the Buyer.

 

4.20.12 The Corporation and the Subsidiary have taken commercially reasonable steps (consistent with a company of its size and scope of operations) to prevent the unauthorized disclosure or use of their trade secrets and Confidential Information. The Corporation and the Subsidiary have a policy requiring all employees and consultants with access to the Corporation and the Subsidiary’s trade secrets and Confidential Information, or who assist in the development of Owned IP, to execute confidentiality and invention assignment agreements in substantially the forms made available to the Buyer, and each past or present employee, consultant or other Person who has developed any Owned IP has executed such an agreement and thereby assigned to the Corporation or the Subsidiary any and all right, title and interest such Person may have in and to all such Intellectual Property developed by such Person in connection with such Person’s employment or engagement by the Corporation or the Subsidiary.

 

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4.20.13 Notwithstanding anything to the contrary, (A) the representations and warranties in this Section 4.20 shall be the sole representations and warranties with respect to matters relating to Intellectual Property and Intellectual Property Rights, (B) the representations and warranties in Section 4.20.5 shall be the sole representations and warranties with respect to matters relating to any infringement or misappropriation of Intellectual Property or Intellectual Property Rights, and (C) the representations and warranties in Section 4.20.6 shall be the sole representations and warranties with respect to matters relating to the validity of Intellectual Property or Intellectual Property Rights.

 

4.21 Accounts Receivable

 

All accounts receivable of the Corporation and the Subsidiary reflected in the Financial Statements, or which have come into existence since the date of the most recent Financial Statements up to the Closing Date, were created in the Ordinary Course from bona fide arm’s length transactions and are valid claims.

 

4.22 Material Contracts

 

Schedule 4.22 of the Disclosure Schedule sets forth, as of the date of this Agreement, a list of all of the following Contracts to which the Corporation or the Subsidiary is a party or by which any of them is bound:

 

4.22.1 Contracts relating to any Indebtedness;

 

4.22.2 Contracts (other than employment contracts) with respect to which the Corporation or the Subsidiary has an annual commitment, obligation or payment of more than $100,000 within the twelve (12)-month period ending December 31, 2017, or such commitment, obligation or payment is reasonably expected to be more than $100,000 for the twelve (12)-month period ending December 31, 2018, that are not terminable without penalty, premium, fee or other liability by the Corporation or the Subsidiary that is a party thereto on ninety (90) days or less notice;

 

4.22.3 Contracts pursuant to which the Corporation or the Subsidiary received more than $100,000 in the twelve (12)-month period ended December 31, 2017 or is reasonably expected to receive more than $100,000 for the twelve (12)-month period ending December 31, 2018;

 

4.22.4 agreements with any non-compete (including with respect to any product, service or geographical area), exclusivity, right of first refusal, most favored nation provision, or other similar provision that restricts the ability of the Corporation or the Subsidiary to conduct its business in any material respect;

 

4.22.5 employment agreements (excluding offer letters) that require annual base salary payments by the Corporation or the Subsidiary in excess of $200,000 per annum;

 

4.22.6 Contracts with any labor union or association relating to current employees of the Corporation or the Subsidiary or collective bargaining agreements;

 

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4.22.7 Contracts with any Material Customer;

 

4.22.8 Contracts with any Material Vendor;

 

4.22.9 Contracts with Governmental Authorities;

 

4.22.10 Contracts for the acquisition of any operating business (whether by merger, consolidation or otherwise) (i) since the January 1, 2012 or (ii) under which the Corporation or the Subsidiary has any continuing obligations after the Closing;

 

4.22.11 franchise, strategic alliance, partnership or joint venture agreements;

 

4.22.12 Contracts relating to an Affiliate Transaction (other than employment contracts or for reimbursable business expenses in the Ordinary Course or benefits under the Plans); and

 

4.22.13 Contracts that would purport to bind the Buyer or any of its Affiliates (other than the Corporation or the Subsidiary) after the Closing.

 

All of the foregoing categories of contracts (whether or not listed on Section 4.22 of the Disclosure Schedule), the Leases and the IP Licenses are collectively referred to herein as the “ Material Contracts .” The Corporation has made available to the Buyer true and correct copies of all written Material Contracts (or a written description of the material terms of any Material Contract that is not written) including all amendments thereto. With respect to each Material Contract: (i) such Material Contract is in full force and effect in accordance with its terms with respect to the Corporation or the Subsidiary and, to the Knowledge of the Corporation, each other party thereto; (ii) such Material Contract is enforceable in accordance with its terms against the Corporation or the Subsidiary and, to the Knowledge of the Corporation, each other party thereto; and (iii) neither the Corporation or the Subsidiary nor, to the Knowledge of the Corporation, any other party thereto, is in breach or default under such Material Contract in any material respect and no event has occurred which, whether or not after the giving of notice, with lapse of time, or both, would constitute such a breach or default by the Corporation or, to the Knowledge of the Corporation, any other party thereto. Neither the Corporation nor the Subsidiary has waived any material rights under any of the Material Contracts or modified any material terms thereof. None of the Sellers, the Corporation or the Subsidiary has received from any counterparties in connection with any of the Material Contracts any written notice that any such party intends to amend or terminate any Material Contract or any material dispute with respect to any Material Contract.

 

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4.23 Accounts and Powers of Attorney

 

The Disclosure Schedule lists:

 

4.23.1 the name of each bank or other depository in which the Corporation and the Subsidiary maintains any bank account, trust account or safety deposit box and the names of all individuals authorized to draw on them or who have access to them; and

 

4.23.2 the name of each Person holding a general or special power of attorney from the Corporation or the Subsidiary and a summary of its terms.

 

4.24 Compliance with Laws, Permits

 

4.24.1 Each of the Corporation and the Subsidiary has and is conducting its business in material compliance with all applicable Laws.

 

4.24.2 There is no, and has not been since the Reference Date, any investigation or review by any Governmental Authority with respect to a material violation of any Law, or to the Knowledge of the Corporation, threatened, with respect to a material violation of any Law. Since the Reference Date, neither the Corporation nor the Subsidiary has received any material written or oral notice or communication from any Governmental Authority of adverse inspection, finding of deficiency, finding of non-compliance, regulatory or warning letter, safety alert, mandatory or voluntary recall, investigation, penalty for corrective or remedial action or other compliance or enforcement action with respect to any of its products or services, in each case which remains unresolved as required thereby or otherwise to the satisfaction of the party sending such notice.

 

4.24.3 The Corporation and the Subsidiary have all material Permits required to enable the Corporation and the Subsidiary to carry on its Business as currently conducted consistent with past practice. The material Permits are in full force and effect without material conditions or limitations other than those that are routinely applicable to other similar Permits and will be in full force and effect immediately after giving effect to the Transactions. The Corporation and the Subsidiary are in material compliance with all Permits to which the Corporation or the Subsidiary is a party or is bound, and have timely made all material filings, reports, notifications, fee payments when due or disclosures required by all such Permits. Neither the Corporation or the Subsidiary has any ongoing reporting or monetary obligations pursuant to any settlement agreement entered into with any Governmental Authority.

 

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4.24.4 Neither the Corporation’s nor any of the Subsidiary’s respective officers, directors, agents, Employees or other Persons authorized to act on their behalf (each such person, collectively, a “ Corporation Person ”) has, in the context of operating the Corporation’s and the Subsidiary’s Businesses, (i) taken, directly or indirectly, any act in furtherance of an offer, payment, promise to pay, authorization, or ratification of the payment, directly or indirectly, of any gift, money, payment, contribution or anything of value to any Person to secure any improper advantage or to obtain or retain business that would cause the Corporation or the Subsidiary to be in material violation of the United States Foreign Corrupt Practices Act of 1977 (the “ FCPA ”), The United Kingdom Bribery Act 2010, the Corruption of Foreign Public Officials Act (Canada) or any other anti-corruption or anti-bribery law or regulation applicable to the Corporation or the Subsidiary (collectively, the “ Anti-Bribery Laws ”). To the Knowledge of the Corporation, no Corporation Person is subject to any pending investigation by, or has received a written request for information from, any Governmental Authority regarding their compliance with Anti-Bribery Laws. None of the Corporation, the Subsidiary or any Corporation Person has, in the context of operating the Corporation’s and the Subsidiary’s Businesses, taken any action which would cause it to be in violation in any material respect of any export control or economic sanctions Laws, including those administered by the U.S. Department of Treasury’s Office of Foreign Assets Controls or the Export Controls Division of Global Affairs Canada, or any other Governmental Authority. Without limiting the foregoing: (i) the Corporation and the Subsidiary have obtained all export licenses and other approvals required for its exports of products, software and technologies from Canada, and (ii) the Corporation and the Subsidiary is in compliance in all material respects with the terms of all applicable export licenses or other approvals.

 

4.25 Environmental Conditions

 

The Corporation, the Subsidiary, the conduct by the Corporation and the Subsidiary of its Business, and the current and past uses by the Corporation or the Subsidiary and condition of the Leased Premises are and have been, while occupied by the Corporation or the Subsidiary, in compliance in all material respects with all applicable Environmental Laws.

 

4.26 Customers and Vendors

 

4.26.1 The Disclosure Schedule sets forth (i) each customer who has paid at least $100,000 aggregate consideration to the Corporation or the Subsidiary, on a consolidated basis, for goods or services rendered for the twelve-month period ended December 31, 2017 (collectively, the “ Material Customers ”) and the amount of consideration paid by each Material Customer during such period and (ii) each vendor from which the Corporation or the Subsidiary has purchased services or products of at least $200,000 in the aggregate, on a consolidated basis, for the twelve-month period ended December 31, 2017 (collectively, the “ Material Vendors ”) and the amount of consideration paid by the Corporation or the Subsidiary to each Material Vendor during such period for such services or products.

 

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4.26.2 No Material Customer has, during the last twelve months:  (i) notified the Corporation or the Subsidiary in writing (including via email) that such Material Customer will terminate its business relationship with the Corporation or the Subsidiary (excluding contracts that expire in accordance with their terms); (ii) threatened, in writing (including via email), to cease or materially decrease, purchasing from or dealing with the Corporation or the Subsidiary; or (iii) materially adversely modified or threatened, in writing (including via email), to materially adversely modify its relationship (including any price decreases) with the Corporation or the Subsidiary, or (iv) altered or threatened in writing (including via email) to alter, or, to the Knowledge of the Corporation, intends to alter, purchases from or dealings with the Corporation or the Subsidiary in the event of the consummation of the transactions contemplated by this Agreement.  

 

4.26.3 No Material Vendor has, during the last twelve months: (i) notified the Corporation or the Subsidiary in writing (including via email) that such Material Vendor will terminate its business relationship with the Corporation or the Subsidiary (excluding contracts that expire in accordance with their terms); (ii) threatened, in writing (including via email), to cease or materially decrease selling to or dealing with the Corporation or the Subsidiary; or (iii) materially adversely modified or threatened in writing (including via email) to materially adversely modify its relationship (including any price increases) with the Corporation or the Subsidiary; or (iv) altered or threatened in writing (including via email) to alter, or, to the Knowledge of the Corporation, intends to alter, selling to or dealings with the Corporation or the Subsidiary in the event of the consummation of the transactions contemplated by this Agreement.

 

4.27 Warranties

 

Since the Reference Date, neither the Corporation nor the Subsidiary has incurred any liability pursuant to any warranty provided by the Corporation or the Subsidiary as a result of any defect or other deficiency with respect to any product developed and licensed, or any service provided, by the Corporation or the Subsidiary, other than liabilities occurring in the Ordinary Course which are not material.

 

4.28 No Government Assistance

 

No agreements, loans, other funding arrangements and assistance programs related to the Business are outstanding in favor of the Corporation or the Subsidiary from any Governmental Authority, except for tax credits under Laws generally available to Persons similarly situated to the Corporation or the Subsidiary.

 

4.29 Employees and Employment Contracts

 

4.29.1 The Disclosure Schedule lists the names, titles and status (active or non-active, and if not active, reason why and period of time not active) of all Employees, together with current rates of remuneration, commissions, bonus or other incentive compensation (monetary or otherwise), hire date, benefits, vacation entitlements, deferred compensation and current positions held. As of the date of this Agreement, no executive or officer of the Corporation or the Subsidiary has provided the Corporation or the Subsidiary with written notice of any plans to terminate employment.

 

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4.29.2 Other than pursuant to the Stock Option Plan, the consummation of the Transactions will not accelerate the time of payment or vesting under any employment contract, contract of engagement, increase the amount of compensation or benefits due to any individual under any such employment contract, contract of engagement or increase the amount of compensation or benefits due to any individual.

 

4.29.3 Except as set forth on Section 4.29.3 of the Disclosure Schedule, each Employee entered into an employment contract in substantially the form made available to the Buyer on or prior to the commencement of such Employee’s employment with the Corporation and none of such employment agreements have been amended or modified. To the Knowledge of the Corporation, no Employee, nor any consultant with whom the Corporation or the Subsidiary has contracted, is in violation of any material term of any employment contract, contract of engagement or proprietary information agreement with the Corporation or the Subsidiary.

 

4.29.4 Except as set forth on the Disclosure Schedule, all of the Employees are employed, engaged or retained for an indefinite term and are subject to written employment agreements or contracts of engagement. True and complete copies of any employment agreements or contracts of engagement have been made available to the Buyer.

 

4.29.5 The Corporation and the Subsidiary have been in material compliance and have not materially violated any Law governing employment practices, including hiring, eligibility to work in any jurisdiction, wages, hours, collective bargaining, employment discrimination, employee classification, workers’ compensation, family and medical leave, occupational safety and health requirements, disability, employee benefits, harassment, civil rights overtime, unfair labor practices, pay equity and the collection and payment of withholding or social security taxes, employee terminations, data privacy and data protection, and any bargaining or other labor association obligations. Neither the Corporation nor the Subsidiary are the subject of, nor, to the Knowledge of the Corporation, have been threatened in writing to be the subject of, any proceeding reasonably likely to give rise to a material liability incurred by the Corporation or the Subsidiary as a result of a breach of any such Law. Each employee of the Corporation or the Subsidiary working in a country other than one of which such employee is a national has a valid work permit or visa enabling him or her to work lawfully in the country in which such individual is employed.

 

4.29.6 Neither the Corporation nor the Subsidiary has any material liability with respect to any misclassification of any person as an independent contractor rather than as an employee or as exempt rather than nonexempt, or with respect to any employee leased from another employer, and no individual who has performed services for the Corporation or the Subsidiary has been improperly included or excluded from participation in any Plan.

 

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4.29.7 Except as set forth in Section 4.29.7 of the Disclosure Schedule, since the Reference Date there have been no claims of wrongful dismissal, or complaints, inquiries, or claims against the Corporation or the Subsidiary made by any current or former employee of the Corporation or the Subsidiary, and to the Knowledge of the Corporation there are no facts or circumstances which may result in a claim, action, suit, proceeding, arbitration, complaint, charge or investigation by or relating to any former employee who ceased to be an employee since the Reference Date. To the Knowledge of the Corporation, neither the Corporation nor the Subsidiary has any liability to or in respect of, and there are no facts or circumstances which may result in a claim, action, suit, proceeding, arbitration, complaint, charge or investigation by or relating to, any former employee who ceased to be an employee since the Reference Date.

 

4.30 Unions

 

Neither the Corporation nor the Subsidiary is party to or bound by any collective bargaining agreement. There are no current or, to the Knowledge of the Corporation, threatened labor dispute or union organizing activities involving Employees. Since the Reference Date, to the Knowledge of the Corporation, there has been no union organizational effort made. The Corporation and the Subsidiary have not received any written or, to the Knowledge of the Corporation, oral notice threatening any such organizational effort by or on behalf of any labor union, works council or similar organization with respect to the employees of the Corporation or the Subsidiary.

 

4.31 Pension and Benefit Plans

 

4.31.1 The Disclosure Schedule lists and describes each Plan. True and complete copies of each Plan have been made available to the Buyer.

 

4.31.2 None of the Plans: (A) is subject to the Employee Retirement Income Security Act of 1974, as amended or (B) constitutes a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada), a pension commission or a similar regulatory authority of a jurisdiction of Canada.

 

4.31.3 The Corporation and the Subsidiary have made all contributions and paid all premiums in respect of each Plan in a timely fashion in accordance with the terms of each Plan.

 

4.31.4 To the Knowledge of the Corporation, other than routine claims for benefits, no Plan is subject to any pending action, investigation, examination, claim (including claims for Taxes).

 

4.31.5 All liabilities of the Corporation and the Subsidiary (whether accrued, absolute, contingent or otherwise) related to all Plans have been fully disclosed in accordance with GAAP in the Financial Statements.

 

4.31.6 All data necessary for an employer to administer each Plan in accordance with its terms is in possession of the Corporation or a Subsidiary or the administrator of such Plan.

 

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4.31.7 Other than under the Stock Option Plan, the consummation of the Transactions will not accelerate the time of payment or vesting under any Plan, increase the amount of compensation or benefits due to any individual under any Plan or increase the amount of compensation or benefits due to any individual under any Plan.

 

4.32 Insurance Policies

 

4.32.1 The Disclosure Schedule sets forth (i) an accurate and complete list of each insurance policy which covers the Corporation or the Subsidiary or any of their businesses, properties, assets, directors or employees (the “ Insurance Policies ”), and (ii) a list of all pending claims and the claims history for the Corporation and the Subsidiary during the current fiscal year and the preceding fiscal year. There are no pending claims under any of such Insurance Policies as to which coverage has been questioned, denied or disputed by the insurer or in respect of which the insurer has reserved its rights. The Corporation and its Subsidiaries comply in all material respects with the terms and provisions of such insurance policies and are not in default in any material respect with respect to any obligation under such insurance policies.

 

4.32.2 Each such Insurance Policy is in full force and effect. All premiums due under the Insurance Policies have been paid in full. Neither the Corporation nor the Subsidiary has received a notice of cancellation of any Insurance Policy or of any material changes that are required in the conduct of its business as a condition to the continuation of coverage under, or renewal of, any such Insurance Policy.

 

4.33 Litigation

 

4.33.1 The Disclosure Schedule sets forth a true, complete, and correct list and description of all Claims involving the Corporation or the Subsidiary since the Reference Date in excess of $150,000 and the resolution or status thereof. Except as set forth on Section 4.33.1 of the Disclosure Schedule, there are no Claims pending, commenced, or, to the Knowledge of the Corporation, threatened against the Corporation or the Subsidiary. There are no Claims pending, commenced or threatened by the Corporation or the Subsidiary against any third party.

 

4.33.2 There is no outstanding judgment, decree, order, ruling or injunction imposed or, to the Knowledge of the Corporation, threatened to be imposed upon the Corporation or the Subsidiary. There is no Claim pending or, to the Knowledge of the Corporation, threatened, that questions the validity of this Agreement or the other Transaction Documents or, of any action taken or to be taken by the Corporation or the Subsidiary in connection with this Agreement or the other Transaction Documents or the Transactions contemplated thereby.

 

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4.34 Affiliate Transactions

 

Except for the Constating Documents, employment agreements, the Options, offer letters, and the payment of compensation or for reimbursable business expenses in the Ordinary Course or benefits under the Plans in the Ordinary Course, and except as otherwise disclosed on the Disclosure Schedule, (a) neither the Corporation nor the Subsidiary is a party to any agreement, contract or other business relationship with any of its current directors, officers or Affiliates or, to the Knowledge of the Corporation, an immediate family member of any such director or officer (any such Person, a “ Related Party ”), (b) to the Knowledge of the Corporation, no Related Party directly or indirectly owns any property (tangible or intangible) or assets which are used by the Corporation or the Subsidiary to conduct its Businesses, and (c) no Related Party owes any Indebtedness to, or is owed any Indebtedness by the Corporation or the Subsidiary (excluding advances for business expenses to employees in the Ordinary Course) (clauses (a) through (c), collectively “ Affiliate Transactions ”).

 

4.35 Brokers

 

Except as set forth on the Disclosure Schedule, neither the Corporation nor the Subsidiary has any obligation to pay any broker’s fee, finder’s fee or commission in connection with the consummation of the Transactions as a result of any arrangements made by and on behalf of any Seller, the Corporation or the Subsidiary or any of their respective Affiliates.

 

4.36 Regulatory

 

4.36.1 The Corporation (including the Subsidiary) does not have assets in Canada or gross revenues from sales in or from Canada generated from those assets in Canada in excess of Cdn. $88 million, as determined in accordance with Part IX of the Competition Act (Canada) and the regulations promulgated thereunder.

 

4.36.2 The Corporation is not a “cultural business” as that term is defined in the Investment Canada Act .

 

4.37 Disclosure

 

No representation or warranty made by the Corporation or the Subsidiary in this Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated herein or necessary to make any statement herein not misleading.

 

Article 5
REPRESENTATIONS AND WARRANTIES OF THE BUYER

 

The Buyer represents and warrants to the Sellers as follows, and acknowledges that the Sellers are relying upon these representations and warranties in connection with the sale of the Purchased Shares.

 

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5.1 Corporate Existence of Buyer

 

The Buyer is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation.

 

5.2 Capacity to Enter Agreement

 

The Buyer has all necessary corporate power, authority and capacity to enter into and perform its obligations under this Agreement.

 

5.3 Binding Obligation

 

The execution and delivery of this Agreement and the other Transaction Documents to which the Buyer is party and the completion of the Transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Buyer. This Agreement has been duly executed and delivered by the Buyer and constitutes a valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency and other Laws of general application limiting the enforcement of creditors’ rights generally and to the fact that equitable remedies, including specific performance, are discretionary and may not be ordered in respect of certain defaults.

 

5.4 Absence of Conflict

 

None of the execution and delivery of this Agreement, the performance of the Buyer’s obligations under this Agreement, or the completion of the Transactions contemplated by this Agreement, will result in or constitute a breach of any term or provision of, or constitute a default under, the Constating Documents of the Buyer or any agreement or other commitment to which the Buyer is a party.

 

5.5 Regulatory Approvals

 

Other than a post-closing notice to be filed under the Investment Canada Act (Canada), no authorization, approval, order, consent of, or filing with, any Governmental Authority is required on the part of the Buyer in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be delivered under this Agreement.

 

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Article 6
COVENANTS

 

6.1 Post-Closing Confidentiality; Non-Disparagement.

 

From and after the date hereof, each Seller shall hold and shall cause each of its Affiliates to hold, and each such Seller shall use its reasonable efforts to cause its and its Affiliates’ respective representatives to hold, in confidence and not use, unless compelled to disclose by judicial or administrative process, Governmental Authority or by other Law, all Confidential Information concerning the Buyer and its Affiliates and the Corporation and the Subsidiary, except to the extent that such Confidential Information can be shown by such Seller to have been (a) previously known on a non-confidential basis by such Seller or its Affiliates (other than as a result of such Seller’s association with the Corporation and the Subsidiary); (b) in the public domain other than as a result of improper disclosure by such Seller or its Affiliates, or (c) later lawfully acquired by such Seller or its Affiliates from sources who did not owe any obligation of confidentiality to the Corporation or the Subsidiary. At no time following the Closing shall (i) any Seller make any disparaging statements regarding the Corporation, the Buyer, any of their respective Affiliates or the Business, and (ii) any of the Buyer, the Corporation or their respective Affiliates make any disparaging statements regarding any Seller, provided, however, that the foregoing restrictions in respect of disparagement shall not apply to any legal disputes between such parties.

 

6.2 Termination of Affiliate Transactions.

 

On or before the Closing Date, except for liabilities relating to the Plans, all Affiliate Transactions or other liabilities between any member of the Corporation or the Subsidiary, on the one hand, and one or more Related Parties, on the other hand, shall be terminated in full, without any liability to Buyer, the Corporation or any of their respective Affiliates following the Closing.

 

6.3 Tax Returns

 

The Buyer will cause to be prepared and filed on a timely basis all Tax Returns for the Corporation and the Subsidiary for any period which ends on or before the Closing Date and for which Tax Returns have not been filed as of the Closing Date. Such Tax Returns will be prepared in accordance with the same methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Tax Returns for the most recent fiscal year end except as otherwise contemplated by this Agreement, to the extent required by a change in circumstance, or to comply with applicable law, and except that such Tax Returns shall, at the option of the Buyer, include an election pursuant to ITA 256(9) to treat the Closing Time as the time of the change of control of the Corporation. The Buyer will also cause to be prepared and filed on a timely basis all Tax Returns for the Corporation and the Subsidiary for all Straddle Periods (all these Tax Returns together with the Tax Returns referred to in the first sentence of this Section 6.3 being referred to as “ Stub Period Returns ”). The Securityholder Representative and the Buyer will co-operate fully with each other and make available to each other in a timely fashion all data and other information as may reasonably be required for the preparation of all Stub Period Returns and will preserve that data and other information until the expiration of any applicable limitation period for maintaining books and records under any applicable Tax Law with respect to the Stub Period Returns. The Stub Period Returns shall be submitted by the Buyer to the Securityholder Representative (together with schedules, statements) at least 20 days prior to the due date (including extensions) of such Tax Return. If the Securityholder Representative objects to any item on any Stub Period Return, it shall, within 5 days after delivery of such Stub Period Return, notify the Buyer in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If a notice of objection shall be duly delivered, the Buyer and the Securityholder Representative shall negotiate in good faith and use their reasonable best efforts to resolve such items. If the Buyer and the Securityholder Representative are unable to reach such agreement within 5 days after receipt by the Buyer of such notice, the disputed items shall be resolved by the Independent Accountant and any determination by the Independent Accountant shall be final, conclusive and binding upon the Parties and not subject to appeal. The Independent Accountant shall resolve any disputed items within 5 days of having the item referred to it pursuant to such procedures as it may require. If the Independent Accountant is unable to resolve any disputed items before the due date for such Stub Period Return, the Stub Period Return shall be filed as prepared by Buyer and then amended to reflect the Independent Accountant’s resolution. The costs, fees and expenses of the Independent Accountant shall be borne equally by the Buyer, on the one hand, and Sellers, on the other hand. The preparation and filing of any Tax Return of the Corporation or the Subsidiary that does not relate to a pre-Closing Date Tax period shall be exclusively within the control of the Buyer. The Buyer and the Securityholder Representative will file all Tax Returns on the basis that from a tax perspective the Closing Date shall be the date upon which the acquisition of control of the Corporation occurred.

 

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6.4 Indemnification of Directors and Officers

 

6.4.1 To the fullest extent not prohibited by applicable Law, from and after the Closing, all rights to indemnification now existing in favour of each present and former director or officer of the Corporation or a Subsidiary (each, together with such person’s heirs, executors or administrators, a “ D&O Indemnified Person ” and collectively, the “ D&O Indemnified Persons ”) with respect to their activities as such prior to, on or after the date of the Closing, as provided in each of the respective Constating Documents or indemnification agreements of the Corporation or a Subsidiary in effect on the date of such activities or otherwise in effect on the Closing Date, shall survive the Closing and shall continue in full force and effect for a period of not less than six years from the Closing Date; provided, that in the event any Claim or Claims are asserted or made within such survival period, all such rights to indemnification in respect of any Claim or Claims shall continue until final disposition of such Claim or Claims.

 

6.4.2 On or prior to the Closing, the Corporation shall, as of the Closing, obtain and fully pay for, at the Sellers’ expense, non-cancellable “tail” insurance policies with a claims period of at least six years from and after the Closing from insurance carriers with the same or better claims-paying ability ratings as the Corporation’s current insurance carriers with respect to directors’ and officers’ liability insurance policies and fiduciary liability insurance policies (collectively, “ D&O Insurance ”), for the persons who are covered by the Corporation’s existing D&O Insurance, with terms, conditions, retentions and levels of coverage at least as favourable as the Corporation’s existing D&O Insurance with respect to matters existing or occurring at or prior to the Closing.

 

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6.4.3 In the event that, after the date of Closing, any of the Corporation, a Subsidiary or the Buyer or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or a substantial portion of its properties and assets to any Person, then, and in either such case, proper provisions shall be made so that the successors and assigns of each of the corporation, a Subsidiary or the Buyer, as the case may be, shall assume the obligations set forth in this Section 6.4.

 

6.4.4 The provisions of this Section 6.4 are intended to be for the benefit of, and shall be enforceable by, each D&O Indemnified Person, his or her heirs, executors or administrators and his or her other Representatives and cannot be amended in a manner adverse to a D&O Indemnified Person without such Person’s consent. The Parties agree that each D&O Indemnified Person (including his or her heirs, executors or administrators and his or her other Representatives) is intended to be, and shall be, a third party beneficiary of this Agreement for the purpose of this Section 6.4.

 

6.5 R&W Insurance

 

Prior to or at the Closing, the Corporation shall provide to the Buyer such cooperation as is reasonably requested by the Buyer to obtain a representation and warranty insurance policy issued in the name of the Buyer with respect to the representations and warranties contained in Articles 3 and 4 of this Agreement pursuant to the binder of insurance agreement between the Buyer and the insurer’s specified therein (the “ R&W Policy ”).  The Buyer shall provide the Securityholder Representative with copies of the binder of insurance agreement and the R&W Policy and any amendments thereto or waivers thereof promptly upon receipt of the binder, the R&W Policy or any such amendment or waiver. The Buyer shall not amend, modify or otherwise change or terminate the R&W Policy in any manner that would be adverse to the Equityholders, or any of their Affiliates or any of their respective Representatives or their respective heirs, executors, successors and assigns, without the prior written consent of the Securityholder Representative. The Buyer, acknowledges and agrees that the Buyer shall pay or cause to be paid all fees, expenses and premiums relating to the R&W Policy and shall be solely responsible for any retention amount or deductible thereunder. The Buyer covenants with each of the Equityholders that: (A) it will not knowingly take any action that causes any right of the insured under the R&W Policy not to have the R&W Policy in full force and effect upon its terms; (B) it will comply with all terms and conditions of the R&W Policy, including any pre- or post-Closing deliverables required under the R&W Policy; and (C) the R&W Policy shall contain an irrevocable waiver of subrogation by the insurer in favour of the Equityholders, and any of their Affiliates or any of their respective Representatives and their respective heirs, executors, successors and assigns, except in the case of Fraud as finally determined by a court of competent jurisdiction.

 

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6.6 Nonsolicitation.

 

6.6.1 During the Restrictive Period, no Seller or any of its Affiliates will, directly or indirectly, or as a stockholder, partner, member, manager, employee, consultant or other owner or participant in any Person, other than the Corporation or the Subsidiary, (i) solicit or endeavor to entice away from the Corporation, or offer employment or a consulting position to, hire or otherwise intentionally interfere with the business relationship of the Corporation with, any Person who is, or was within the six month period prior to the Closing Date, an employee of or consultant to the Corporation or the Subsidiary (provided that a Seller shall not be in breach of this Section in connection with good faith solicitation through a general advertisement) or (ii) in a manner competitive to the Business (as conducted by the Corporation at the Closing Time), solicit or endeavor to entice away from the Corporation, endeavor to reduce the business conducted with the Corporation by, or otherwise intentionally interfere with the business relationship of the Corporation with any Person who is, or was within the six month period prior to the Closing Date, a customer or client of, supplier, vendor or service provider to, or other Person having material business relations with, the Corporation or the Subsidiary.

 

6.6.2 For purposes of this Section 6.6, the following terms shall have the following meanings:

 

6.6.2.1 Corporation ” shall mean and include the Corporation and the Subsidiary and their respective successors and permitted assigns.

 

6.6.2.2 Restrictive Period ” means the period commencing as of the Closing and ending as of the second year anniversary of the Closing.

 

6.6.3 The Buyer acknowledges that (i) Peterson Partners and its Affiliates are engaged in the business of private equity investing and may from time to time invest in entities that develop and utilize technologies, products or services that are similar to or competitive with those of the Corporation, (ii) this Agreement shall not prevent Peterson Partners or its Affiliates from (a) engaging in or operating any business, (b) entering into any agreement or business relationship with any third party, (c) evaluating or engaging in investment discussions with, or investing in, any third party, whether or not competitive with the Corporation, and (iii) nothing in this Agreement shall prevent any investee entity from soliciting a customer or client of, supplier, vendor or service provider of, or current or former employee or consultant of, the Corporation, except to the extent such solicitation was done at the direction of Peterson Partners.

 

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6.6.4 The Corporation and the Sellers acknowledge that any breach or threatened breach of the provisions of Section 6.6 of this Agreement will cause irreparable injury to the Buyer, the Corporation and/or the Subsidiary for which an adequate monetary remedy does not exist. Accordingly, in the event of any such breach or threatened breach, the Buyer (in the case of Section 6.6) and the Buyer, the Corporation and/or the Subsidiary (in the cases of Section 6.6) shall be entitled, in addition to the exercise of other remedies, to seek and (subject to court approval) obtain injunctive and other equitable relief, without necessity of posting a bond, restraining the Corporation and/or the Sellers, as the case may be, from committing such breach or threatened breach. The right provided under this Section 6.6 shall be in addition to, and not in lieu of, any other rights and remedies available to the Buyer, the Corporation or the Subsidiary.

 

6.6.5 Each Seller (a) has carefully read and understands all of the provisions of this Agreement and has had the opportunity for this Agreement to be reviewed by counsel, (b) acknowledges that the duration and subject matter of Section 6.6 of this Agreement are reasonable and necessary to protect the goodwill, customer relationships, legitimate business interests, trade secrets and confidential and proprietary information of the Business, (c) acknowledges that the Buyer would not have closed the Transactions without the benefits contained in this Agreement, (d) will be able to earn a satisfactory livelihood without violating this Agreement and (e) understands that this Agreement is assignable by the Buyer in certain circumstances and shall inure to the benefit of its successors and permitted assigns.

 

6.6.6 The Buyer and the Sellers shall, if requested by any of the Sellers, jointly execute and file an election under subsection 56.4(7) of the ITA and the corresponding provisions of any applicable provincial taxing statute or regulation, within the prescribed time periods, with respect to any covenants of the Sellers in this Article 6.

 

6.7 Options

 

Promptly following the Closing Time,

 

6.7.1 in respect of the Vested Option Amount:

 

6.7.1.1 Schedule 2.2 shall set forth the gross Vested Option Amount payable to each holder of a Vested Option;

 

6.7.1.2 using the gross Vested Option Amount, the Corporation shall calculate the applicable Tax or other withholding requirements (including the employer portion thereof) and through the Corporation’s regular payroll procedures remit such amounts to the appropriate Governmental Authority;

 

6.7.1.3 the after-tax balance of the Vested Option Amount (other than the Vested Option Amount for the Majority Optionholders which shall be paid by the Corporation to the holders of the Vested Options (other than the Majority Optionholders) through the Corporation’s regular payroll procedures and in accordance with each such holder’s Stock Option Cancellation Agreement;

 

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6.7.1.4 from the after-tax balance of the Vested Option Amount for the Majority Optionholders, the Corporation shall pay the amount of each Majority Optionholder’s Pro Rata Portion of the Reserve Amount and Escrow Fund to the Securityholder Representative and Escrow Agent, respectively; and

 

6.7.1.5 the remaining balance of the Vested Option Amount for the Majority Optionholders shall be paid to the Majority Optionholders through the Corporation’s regular payroll procedures and in accordance with each such Majority Optionholder’s Stock Option Cancellation Agreement; and

 

6.7.2 in respect of the Unvested Option Amount:

 

6.7.2.1 the Corporation shall pay or cause to be paid, through the Corporation’s regular payroll procedures, the Unvested Option Amount to the holders of the Unvested Options in the amounts set forth on Schedule 2.2 (net of any applicable Tax or other employment-related withholdings).

 

6.8 Release of Claims.

 

6.8.1.1 Each Seller hereby irrevocably and unconditionally releases and forever discharges the Corporation, the Subsidiary, their respective directors, officers, employees, shareholders and representatives, heirs, executors, administrators, legal representatives, successors and assigns (all such persons and entities being called the “ Releasees ”) from: (A) all Claims which such Seller or his/her heirs, executors, administrators, legal representatives, successors and assigns (the “ Releasing Parties ”) ever had, now have, or may in the future have against any of the Releasees by reason of any cause, matter or thing, whether known or unknown, occurring on or prior to the Closing and (B) any and all obligations, responsibilities, liabilities and debts to any of the Releasing Parties of any kind or nature whatsoever based upon any facts, circumstances, or matters occurring at or prior to the Closing, whether absolute or contingent, known or unknown. However, the foregoing shall not release or otherwise affect (i) the indemnification, representations, warranties, covenants, and all other rights and obligations of any Party set forth in or arising out of this Agreement or any other agreement entered into in connection herewith, (ii) any obligation of the Corporation to such Seller as an employee, officer or director of the Corporation for accrued and unpaid salary, compensation or remuneration, accrued bonus, expense reimbursements and other employee benefits under any Plan, (iii) any statutory rights to indemnification or advancement, coverage under any applicable liability insurance policy covering the directors and/or officers of the Corporation or any of its Affiliates in effect on or prior to the Closing, the rights to indemnification and advancement in such Seller’s favor described in this Agreement or the rights to indemnification and advancement set forth in the articles, bylaws or other Constating Documents of the Corporation, and (iv) any claim that may not be released as a matter of applicable law.

 

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6.8.1.2 Each Seller, jointly and severally, for itself and each of its Releasing Parties, expressly waives the benefit of any applicable law, which, if applied to this Section 6.8, would otherwise exclude from its binding effect any Claim not known by such Seller, the Releasing Parties or the Releasees on the date hereof. Such Seller, jointly and severally, for itself and each of its Releasing Parties, hereby irrevocably covenants to refrain from, directly or indirectly through the Corporation or otherwise, asserting any Claim, or commencing, instituting or causing to be commenced, any Claim of any kind against any Releasee before any Governmental Authority or other forum by reason of any matters released hereby. Such Seller, jointly and severally, for itself and each of its Releasing Parties, represents to the Releasees that such Seller has not assigned or transferred or purported to assign or transfer to any Person all or any part of, or any interest in, any Claim (at law or in equity) or Loss of any nature, character or description whatsoever, which is or which purports to be released or discharged by this Section 6.8.

 

Article 7

 

CLOSING CONDITIONS

 

7.1 Conditions Precedent for the Benefit of the Buyer

 

The obligation of the Buyer to complete the Transactions will be subject to the fulfilment of the following conditions at or before the Closing Time:

 

7.1.1 Options

 

7.1.1.1 The Corporation and each holder of Vested Options shall have executed and delivered a Stock Option Cancellation Agreement.

 

7.1.1.2 The Corporation shall have cancelled the Unvested Options.

 

7.1.2 Required Consents

 

7.1.2.1 All of the Required Consents shall have been obtained.

 

7.1.3 No Action to Restrain. No order of any Governmental Authority will be in force, and no action or proceeding will be pending or threatened by any Person:

 

7.1.3.1 to restrain or prohibit the completion of the Transactions, including the sale and purchase of the Purchased Shares;

 

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7.1.3.2 to restrain or prohibit the Corporation or the Subsidiary from carrying on its Business.

 

7.1.4 Escrow Agreement

 

7.1.4.1 The Securityholder Representative and the Escrow Agent shall have executed and delivered the Escrow Agreement.

 

7.1.5 Employment Agreements

 

7.1.5.1 The employees of the Corporation set forth on Schedule 7.1.5.1 shall have entered into employment agreements in form and substance satisfactory to the Buyer.

 

7.1.6 Affiliate Transactions

 

7.1.6.1 The Corporation shall have delivered to the Buyer evidence of the termination of all Affiliate Transactions, in form and substance reasonably satisfactory to the Buyer, in accordance with Section 6.2.

 

7.1.7 Deliveries. The Equityholders will have delivered to the Buyer the following in form and substance satisfactory to the Buyer:

 

7.1.7.1 the Estimated Closing Date Statement and the other deliverables required by Section 2.5;

 

7.1.7.2 original share certificates representing the Purchased Shares in fully transferable form or duly executed stock powers and accompanied by certified copies of resolutions authorizing the transfer of the Purchased Shares;

 

7.1.7.3 duly executed resignations of each director and officer of the Corporation and the Subsidiary;

 

7.1.7.4 releases from each director of the Corporation and the Subsidiary of all Claims they may have against the Corporation or the Subsidiary substantially on the terms of the release attached as Exhibit 7.1.7.4;

 

7.1.7.5 executed Stock Option Cancellation Agreements with respect to the Vested Options;

 

7.1.7.6 evidence of termination of the Unvested Options (other than those Unvested Options identified on Schedule 2.2 which have been promised but not granted or issued by the Corporation);

 

7.1.7.7 evidence of termination of the Shareholder Agreement;

 

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7.1.7.8 evidence of termination of the powers of attorney set forth on Schedule 4.23.2;

 

7.1.7.9 executed Statement of Work No. 1, effective as of October 1, 2017 for the Bayer Agreement in form reasonably acceptable to the Buyer;

 

7.1.7.10 all documentation and other evidence reasonably requested by the Buyer in order to establish the due authorization and completion of the Transactions contemplated by this Agreement, including the taking of all corporate or similar proceedings by the boards of directors and shareholders (or similar managing authorities) of the Sellers and the Corporation required to effectively carry out the obligations of the Sellers pursuant to this Agreement.

 

7.2 Waiver by the Buyer

 

The conditions contained in Section 7.1 are inserted for the exclusive benefit of the Buyer and may be waived in whole or in part by the Buyer at any time without prejudice to any of its rights of termination in the event of non-performance of any other condition in whole or in part.

 

7.3 Conditions Precedent for the Benefit of the Sellers

 

The obligation of the Sellers to complete the Transactions will be subject to the fulfilment of the following conditions at or before the Closing Time:

 

7.3.1 R&W Policy

 

7.3.1.1 The R&W Policy shall have been bound and in full force and effect, and the Buyer shall have provided the Securityholder Representative with a true and correct copy of the bound commitment for the R&W Policy.

 

7.3.2 No Action to Restrain. No order of any Governmental Authority will be in force, and no action or proceeding will be pending or threatened by any Person:

 

7.3.2.1 to restrain or prohibit the completion of the Transactions, including the sale and purchase of the Purchased Shares;

 

7.3.2.2 to restrain or prohibit the Corporation or the Subsidiary from carrying on its Business.

 

7.3.3 Escrow Agreement

 

7.3.3.1 The Buyer and the Escrow Agent shall have executed and delivered the Escrow Agreement.

 

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7.3.4 Closing Payments

 

7.3.4.1 The Buyer shall have made or cause to be made the payments contemplated by Section 2.3.

 

7.3.5 Deliveries . The Buyer will have delivered to the Sellers the following in form and substance satisfactory to the Sellers:

 

7.3.5.1 all documentation and other evidence reasonably requested by the Securityholder Representative in order to establish the due authorization and completion of the transactions contemplated by this Agreement, including the taking of all corporate proceedings by the board of directors of the Buyer required to effectively carry out the obligations of the Buyer pursuant to this Agreement.

 

7.4 Waiver by the Sellers

 

The conditions contained in Section 7.3 are inserted for the exclusive benefit of the Sellers and may be waived in whole or in part by the Securityholder Representative at any time without prejudice to any of its rights of termination in the event of non-performance of any other condition in whole or in part.

 

Article 8
SURVIVAL AND INDEMNIFICATION

 

8.1 Survival of Representations and Warranties and Covenants

 

The representations and warranties contained in this Agreement shall survive the Closing for the period set forth in the R&W Policy; except for: (a) the representations and warranties set forth in Sections 3.3 and 4.14, which shall survive until the date that is 90 days following the last day upon which any Governmental Authority is entitled to assess or reassess the Corporation or the Subsidiary with respect to any Tax, for any taxation year ending on or before the Closing Date or related to the portion of any Straddle Period up to the Closing Date, and if any assessment or reassessment is made by a Governmental Authority with respect to any such taxation year or portion of any Straddle Period up to the Closing Date, until such time that such Governmental Authority may raise Claims against the Buyer, the Corporation or the Subsidiary with respect to such assessment or reassessment (the “ Tax Survival Period ”); (b) any of the representations and warranties of the Corporation set forth in Sections 4.1, 4.2, 4.3, 4.5, 4.6, 4.8, 4.9, 4.10, subsection 4.20.2, 4.34 and 4.35 (collectively, the “ Fundamental Representations ”) or the Sellers set forth in Sections 3.1 and 3.2 which shall survive until 11:59 p.m. Toronto time on the day which is five years after the date on which the Closing occurs; and (c) the representations and warranties set forth in subsection 4.20.5, which shall survive until 11:59 p.m. Toronto time on the day which is three years after the date on which the Closing occurs (the “ Specified IP Representation ”). All covenants and agreements contained in this Agreement shall survive the Closing and continue for the time periods set forth therein (or, if no time period is set forth herein or therein, the applicable limitation period under the Limitations Act 2002 (Ontario)), other than covenants and agreements of the Corporation, the Sellers and the Buyer which by their terms are to be wholly performed prior to the Closing; provided that (i) the covenant and agreement set forth in Section 8.2.3(c) shall survive for the Tax Survival Period, and (ii) the covenant and agreement set forth in Section 8.2.3(d) shall survive until 11:59 p.m. Toronto time on the day which is eighteen months after the date on which the Closing occurs.

 

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8.2 Indemnification by the Equityholders

 

8.2.1 Subject to the other terms of this Article 8, each Equityholder agrees, individually and not jointly and severally, to indemnify the Buyer Indemnitees and hold each of them harmless from and against and pay on behalf of or reimburse any such Buyer Indemnitees in respect of the entirety of any Loss which such Buyer Indemnitee suffers, sustains or becomes subject to, as a result of, arising out of, relating to or in connection with (a) any inaccuracy or breach of any representations or warranties of such Equityholder contained in Article 3 (if such Equityholder is a Seller) or contained in the Equityholder’s Stock Option Cancellation Agreement (if such Equityholder is a Majority Optionholder), or (b) any breach of any covenant of such Equityholder contained in this Agreement or contained in the Equityholder’s Stock Option Cancellation Agreement (if such Equityholder is a Majority Optionholder). Each Equityholder shall, subject to, for greater certainty, Sections 8.4.4 and 8.4.5, be responsible for 100% (as opposed to such Equityholder’s Pro Rata Portion) of the Losses arising under this Section 8.2.1 and no other Equityholder shall have any liability for the same.

 

8.2.2 Subject to the other terms of this Article 8, Peterson Partners shall have a joint and several obligation, and each other Equityholder shall have a several obligation in accordance with their Pro Rata Portion, to indemnify the Buyer Indemnitees and hold each of them harmless from and against and pay on behalf of or reimburse any such Buyer Indemnitees in respect of the entirety of any Loss which such Buyer Indemnitee suffers, sustains or becomes subject to, as a result of, arising out of, relating to or in connection with (a) any inaccuracy or breach of any representation or warranty of the Corporation contained in Article 4, other than the Fundamental Representations, the Specified IP Representation or the representations and warranties contained in Sections 3.3 and 4.14, or (b) any breach of any covenant of the Corporation contained in this Agreement that is required to be performed prior to the Closing.

 

8.2.3 Subject to the other terms of this Article 8, Peterson Partners shall have a joint and several obligation, and each other Equityholder shall have a several obligation in accordance with their Pro Rata Portion, to indemnify the Buyer Indemnitees and hold each of them harmless from and against and pay on behalf of or reimburse any such Buyer Indemnitees in respect of the entirety of any Loss which such Buyer Indemnitee suffers, sustains or becomes subject to, as a result of, arising out of, relating to or in connection with (a) any inaccuracy or breach of any of the Fundamental Representations or the representations and warranties contained in Sections 3.3 and 4.14, (b) any inaccuracy or breach of the Specified IP Representation, (c) the items described in Section 4.14 of the Disclosure Schedule, (d) any Indebtedness of the Corporation or Sellers’ Expenses to the extent not included in the determination of the Final Purchase Price and (e) the dispute described in Item 3 of Section 4.33 of the Disclosure Schedule.

 

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8.3 Indemnification by the Buyer

 

8.3.1 Subject to the other terms of this Article 8, the Buyer shall indemnify the Seller Indemnitees and hold each of them harmless from and against and pay on behalf of or reimburse any such Seller Indemnitees in respect of the entirety of any Loss which such Seller Indemnitee suffers, sustains or becomes subject to, as a result of, arising out of, relating to or in connection with any (a) inaccuracy or breach of any representation or warranty of the Buyer contained in Article 5; (b) any breach of any covenant of the Buyer contained in this Agreement; or (c) any breach of any covenant of the Corporation contained in this Agreement that is required to be performed after the Closing Time.

 

8.4 Limitations and other Provisions

 

8.4.1 Threshold and De Minimus .

 

8.4.1.1 No amount shall be payable to a Buyer Indemnitee in satisfaction of any Claim for indemnification pursuant to Section 8.2 unless and until the aggregate Losses paid, incurred, sustained or accrued (or anticipated to be paid, incurred, sustained or accrued) equal or exceed $50,000 (the “ Threshold ”), at which time the Equityholders shall indemnify the Buyer Indemnitees on the terms set out in this Article 8, for the full amount of all Losses in excess of the Threshold provided that the Threshold shall not apply to any Indemnity Claim: (a) pursuant to Section 8.2.1 or Section 8.2.3, or (b) based on Fraud (clauses (a) and (b) are collectively referred to herein as the “ Excluded Claims ”).

 

8.4.1.2 No amount shall be payable to a Buyer Indemnitee in satisfaction of any single Claim (or series of related Claims) for indemnification pursuant to Section 8.2 unless the aggregate Losses paid, incurred, sustained or accrued (or anticipated to be paid, incurred, sustained or accrued) equal or exceed $5,000 (the “ De Minimus Amount ”). All De Minimus Amounts shall be taken into account when determining whether the aggregate of all Losses exceeds the Threshold.

 

8.4.2 The amount remaining in the Escrow Fund from time to time shall be the Buyer Indemnitees’ sole and exclusive remedy and source of recovery for Losses as against the Equityholders; except for any Indemnity Claim by the Buyer Indemnitees for Excluded Claims.

 

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8.4.3 All Indemnity Claims by the Buyer Indemnitees for Excluded Claims shall be brought first against the Escrow Fund until it is exhausted and then, against the R&W Policy unless or until recovery under the terms of the R&W Policy either: (i) has been denied or is unavailable for such Excluded Claim, in either case, pursuant to a specific exclusion in Section 4 of the R&W Policy (other than Section 4(a) of the R&W Policy) (a “ Specific R&W Exclusion ”) or (ii) has been exhausted by virtue of the R&W Policy limit being exceeded, and only in the event that recovery under the terms of the R&W Policy either is not available due to a Specific R&W Exclusion or has been exhausted by virtue of the R&W Policy limit being exceeded shall the amount of the Loss that is not reimbursed pursuant to the R&W Policy be paid by the Equityholders, subject to the extent otherwise required by, and all of the limitations contained in, this Article 8 (including Sections 8.4.4 and 8.4.5). The Buyer shall use commercially reasonable efforts to pursue and obtain coverage for such Losses to the fullest extent of the limits under the R&W Policy.

 

8.4.4 Notwithstanding any other provision of this Agreement, the aggregate amount of Losses in respect of all Indemnity Claims under Section 8.2.1 and Section 8.2.3 for which the Buyer Indemnitees can recover from an Equityholder shall not exceed the portion of the Equityholder Consideration received by such Equityholder; provided that the aggregate amount of Losses in respect of all Indemnity Claims under Section  8.2.3(b) for which the Buyer Indemnitees can recover from the Equityholders shall not exceed $5,000,000.

 

8.4.5 For greater certainty, the aggregate amount of Losses in respect of all Indemnity Claims made by the Buyer Indemnitees under this Agreement for which the Buyer Indemnitees may recover from the Equityholders shall not exceed an amount equal to the Equityholder Consideration less amounts received by the Buyer under the R&W Policy.

 

8.5 Notice of Claim

 

If an Indemnified Party becomes aware of a Loss or potential Loss in respect of which the Indemnifying Party has agreed to indemnify it under this Agreement, the Indemnified Party will promptly give written notice (an “ Indemnity Notice ”) of its Claim or potential Claim for indemnification (an “ Indemnity Claim ”) to the Indemnifying Party within thirty (30) Business Days upon learning of such Claim. An Indemnity Notice must specify whether the Indemnity Claim arises as the result of a Claim made against an Indemnified Party by a Person who is not a Party (a “ Third Party Claim ”) or as a result of a Loss that was suffered directly by an Indemnified Party (a “ Direct Claim ”), and must also specify with reasonable particularity (to the extent that the information is available):

 

8.5.1 the factual basis for the Indemnity Claim; and

 

8.5.2 the amount of the Indemnity Claim, if known.

 

If, through the fault of the Indemnified Party, the Indemnifying Party does not receive an Indemnity Notice of an Indemnity Claim in time to effectively contest the determination of any liability capable of being contested, the Indemnifying Party will be entitled to set off against the amount claimed by the Indemnified Party the amount of any Loss actually incurred by the Indemnifying Party resulting from the Indemnified Party’s failure to give an Indemnity Notice on a timely basis (including prior to the end of the thirty (30) Business Day period specified above).

 

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8.6 Procedure for Direct Claims

 

Following receipt of an Indemnity Notice from the Indemnified Party of a Direct Claim, the Indemnifying Party will have thirty (30) Business Days to make any investigations it considers necessary or desirable. For the purpose of those investigations, the Indemnified Party will make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Direct Claim, together with all other information that the Indemnifying Party may reasonably request relating to the Direct Claim, including information that the Indemnified Party may have to seek from third parties. If both the Indemnified Party and the Indemnifying Party agree at or before the expiration of that 30-Business Day period (or any mutually agreed upon extension) to the validity and amount of the Direct Claim, then the Indemnifying Party will pay immediately to the Indemnified Party the full agreed upon amount of the Loss for which the Direct Claim is made, and no subsequent proceeding will be brought concerning that Direct Claim.

 

8.7 Procedure for Third Party Claims

 

8.7.1 The Indemnified Party will promptly deliver to the Indemnifying Party copies of all correspondence, notices, assessments or other written Communication received by the Indemnified Party in respect of any Third Party Claim.

 

8.7.2 If the Indemnifying Party first acknowledges in writing its obligation, subject to the limits in this Article 8, to satisfy an Indemnity Claim to the extent of any binding determination or settlement in connection with a Third Party Claim (or enters into arrangements otherwise satisfactory to the Indemnified Party), in any legal or administrative proceeding in connection with the matters forming the basis of a Third Party Claim, the following will apply:

 

8.7.2.1 Indemnifying Party may not enter into a settlement of any Third Party Claim without the written consent (which may not unreasonably be withheld, delayed or conditioned) of the Indemnified Party unless such settlement provides the Indemnified Party with a full release from such Third Party Claim and requires no more than a monetary payment for which the Indemnified Party is fully indemnified;

 

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8.7.2.2 the Indemnifying Party will have the right by written notice delivered to the Indemnified Party within 10 Business Days of receipt by the Indemnifying Party of an Indemnity Notice, to assume carriage and control of the negotiation, defence or settlement of a Third Party Claim and the conduct of any related legal or administrative proceedings at the expense of the Indemnifying Party and by its own counsel; provided, further, that the Indemnifying Party shall not have the right to assume control of such defense if (A) the Third Party Claim seeks, as the primary portion of relief sought, equitable relief or is a criminal claim, (B) the Third Party Claim has a reasonable risk of resulting in Losses that are not indemnifiable by the Indemnified Party under this Article 8 (taking into account indemnification limitations in this Article 8) from the Escrow Fund, (C) the Third Party Claim is brought by a Material Customer or Material Vendor, (D) a conflict of interest exists between the Indemnifying Party and the Indemnified Party, or (E) after notice and opportunity to cure the Indemnifying Party failed or is failing to diligently prosecute or defend such Third Party Claim;

 

8.7.2.3 if the Indemnifying Party elects to assume carriage and control, the Indemnified Party will have the right to participate at its own expense in the negotiation, defence or settlement of a Third Party Claim assisted by counsel of its own choosing; and

 

8.7.2.4 each of the Indemnified Party and the Indemnifying Party will make its best efforts to make available to the Party who has assumed carriage and control of the negotiation, defence or settlement of a Third Party Claim those employees whose assistance or evidence is necessary to assist that Party in evaluating and defending that Third Party Claim and all documents, records and other materials in the possession or control of that Party required for use in the negotiation, defence or settlement of that Third Party Claim; provided that such cooperation shall be subject to such additional limitations as the Indemnified Party may reasonably require to prevent the disruption of the Business of Indemnified Party and its Affiliates, the disclosure of any confidential or legally privileged information, and/or the disclosure or use of any personal information other than in compliance with applicable privacy laws.

 

8.7.3 If the Indemnifying Party does not assume control of the defense of any Third Party Claim, or the Indemnifying Party elects to assume control of such defense but does not conduct the defense of the Third-Party Claim diligently and in good faith, then the Indemnified Party may defend through counsel of its own choosing and in such manner as it reasonably deems appropriate with such defense being at the Indemnifying Party’s expense if and to the extent liable under the terms of this Article 8, and the Indemnified Party shall be entitled to enter into a compromise or settlement thereof at its sole discretion; provided that, for greater certainty, such compromise or settlement shall not be binding on or imply any admission by the Indemnifying Party for purposes of establishing any entitlement to indemnification pursuant to this Agreement or in determining the amount of any Losses.

 

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8.7.4 In the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with Indemnified Party in such defense and make available to the Indemnified Party all such witnesses, records, materials and information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as is reasonably required by the Indemnified Party and the Indemnifying Party may participate by the Indemnifying Party’s own counsel and at the Indemnifying Party’s own expense in the defense of such Third Party Claim.

 

8.7.5 When the amount of the Loss with respect to a Third Party Claim is finally determined in accordance with this Section 8.7, subject to the provisions of this Article 8, the Indemnifying Party will immediately pay the full amount of that Loss to the Indemnified Party.

 

8.8 Third Party Indemnification

 

8.8.1 To ensure that the indemnities provided by:

 

8.8.1.1 the Equityholders to the Buyer Indemnitees other than the Buyer are enforceable, it is agreed by each of the Parties that the Buyer is acting as agent for the Buyer Indemnitees other than the Buyer with respect to the indemnities to be given to those other Buyer Indemnitees under this Article 8; and

 

8.8.1.2 the Buyer to the Seller Indemnitees are enforceable, it is agreed by the Parties that the Securityholder Representative is acting as agent for the Seller Indemnitees with respect to the indemnities intended to be given to the Equityholders and the Seller Indemnitees under this Article 8.

 

8.8.2 The Buyer agrees that it will hold any right to indemnification that any Buyer Indemnitee other than the Buyer is intended to have under this Article in trust for that other Buyer Indemnitee, and that funds received by the Buyer in respect of any Claims under this Article by any other Buyer Indemnitee will be held in trust for that other Buyer Indemnitee.

 

8.8.3 The Equityholders agree that they will hold any right to indemnification that any Seller Indemnitee is intended to have under this Article in trust for that Seller Indemnitee, and that funds received by the Equityholders or the Securityholder Representative in respect of any Claims under this Article by any Seller Indemnitee will be held in trust for that Seller Indemnitee.

 

8.9 Additional Provisions and Limitations re: Indemnification

 

8.9.1 An Indemnified Party shall not be entitled to double recovery for any indemnification claim even though such indemnification claim may have resulted from the breach of one or more representations, warranties or covenants in this Agreement.

 

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8.9.2 If an Indemnified Party recovers an amount from a third party in respect of an indemnification claim after all or a portion of the Losses related thereto have been paid by an Indemnifying Party, the Indemnified Party shall promptly remit to the Securityholder Representative for distribution to such Equityholders the amount recovered from such third party, up to the maximum amount paid on account of such indemnification claim.

 

8.9.3 Notwithstanding any other provision herein, if any indemnification claims are based, in whole or in part, upon the activities or the alleged activities of the Buyer Indemnitees (other than the Corporation or the Subsidiary in respect of activities or alleged activities during the period on or before the Closing Date, unless such activities or alleged activities were taken at the instruction of the Buyer in accordance with this Agreement), then the Equityholders shall not be required to make any payments to the Buyer Indemnitees for the portion of such indemnification claim that have has resulted from such activities or the alleged activities of the Buyer Indemnitees.

 

8.9.4 Nothing in this Agreement shall in any way restrict or limit the general obligation at Law of an Indemnified Party to mitigate any damages which it may suffer or incur by reason of the breach by an Indemnifying Party of any representation, warranty or covenant of the Indemnifying Party or Corporation under this Agreement.

 

8.9.5 The amount of any Loss for which indemnification is provided under this Agreement will be (i) increased to take account of any net Tax cost incurred by the Indemnified Party arising from the receipt of indemnity payments under this Agreement , and (ii) reduced to take account of any net Tax benefit realized by the Indemnified Party arising from the incurrence or payment of that Loss, to the extent necessary to ensure that the Indemnified Party receives a net amount which, taking into account any net Tax cost or net Tax benefit, is sufficient to fully compensate for the Loss, but results in no net gain to the Indemnified Party.

 

8.10 Calculation of Losses

 

8.10.1 To the extent any Losses of an Indemnified Party are reduced by receipt of payment (a) under any insurance policy (including the R&W Policy) or (b) from third parties not affiliated with the Indemnified Party, such payments (net of any related deductible) shall be credited against such Losses and, if indemnification payments shall have been received prior to the collection of such proceeds, the Indemnified Party shall remit to the Indemnifying Party the amount by which the total amount received by the Indemnified Party in respect of such Losses (including from any such insurance policy, the Indemnifying Party or any other Person) exceeds the total amount of the Losses suffered by Indemnified Party.

 

8.10.2 The Party seeking indemnification shall not be entitled to any award of damages in relation to any breach of the representations and warranties given by the other Party to the extent that no actual Loss is suffered or arises and the claim for indemnification relates only to the fact that the representation or warranty is untrue, misleading or otherwise inaccurate.

 

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8.10.3 There shall be no indemnification with respect to any Indemnity Claim arising as a consequence of the retroactive effect, to any period of time prior to the Closing Date, of any applicable Laws issued, promulgated, approved or entered into on, or at any time subsequent to, the Closing Date.

 

8.11 Treatment of Indemnification Payments

 

All indemnification payments made under this Agreement shall be treated by the Parties as an adjustment to the Equityholder Consideration for Tax purposes, unless otherwise required by applicable Law, and the parties agree to file their Tax Returns consistently with such characterization.

 

8.12 Exclusive Remedy

 

The Parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, other than in the case of Fraud, shall be pursuant to the indemnification provisions set forth in this Article 8. In furtherance of the foregoing, each Party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other Parties and their Affiliates and each of their respective Representatives arising under or based upon any Law, except (i) pursuant to the indemnification provisions set forth in this Article 8, (ii) in the case of Fraud or (iii) specific performance and injunction pursuant to Section 6.6.

 

8.13 Read-Out of Materiality

 

For all purposes of this Article 8 (including for purposes of determining the existence of a breach (other than in respect of Section 4.16.12) and for determining the amount of Losses suffered, sustained or incurred as a result thereof, the representations and warranties contained in this Agreement shall be deemed to have been without any qualifications as to Material Adverse Effect or other similar materiality qualifier.

 

Article 9
Arbitration

 

9.1 Arbitration

 

All disputes, disagreements, controversies, questions or claims arising out of or relating to this Agreement, including, without limitation, with respect to its formation, execution, validity, application, interpretation, performance, breach, termination or enforcement, but excluding the Buyer seeking an injunction pursuant to Section 6.6 (“ Disputes ”), will be determined by a sole arbitrator (the “ Arbitrator ”) under the Arbitration Act, 1991 (Ontario) (the “ Arbitration Act ”). In addition:

 

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9.1.1 Section 7(2) of the Arbitration Act will not apply to the arbitration of a Dispute;

 

9.1.2 the Party who gives notice to the other Party of a Dispute it wishes to settle through arbitration as set out herein (the “ Arbitration Notice ”) shall propose an individual to act as Arbitrator and shall provide the name and up to date resumé of such person to the other Party. If the other Party does not agree with the proposed Arbitrator being appointed and the Parties cannot agree on an Arbitrator within 20 Business Days following receipt of the Arbitration Notice, the Arbitrator will be appointed by a judge of the Superior Court of Justice of Ontario on the application of any Party on notice to all the other Parties. No individual will be appointed as Arbitrator unless he or she agrees in writing to be bound by the provisions of this Article 9;

 

9.1.3 the law of the Province of Ontario will apply to the substance of all Disputes;

 

9.1.4 the arbitration will take place in the City of Toronto unless otherwise agreed in writing by the Parties;

 

9.1.5 the language to be used in the arbitration will be English;

 

9.1.6 the Arbitrator, after giving the Parties an opportunity to be heard, will determine the procedures for the arbitration of the Dispute, provided that those procedures will include an opportunity for written submissions and responses to written submissions by or on behalf of all Parties, and may also include an opportunity for exchange of oral argument and any other procedures as the Arbitrator considers appropriate. However, if the Parties agree on a code of procedures or on specific matters of procedure, that agreement will be binding on the Arbitrator;

 

9.1.7 the Arbitrator will have the right to determine all questions of law and jurisdiction, including questions as to whether a Dispute is arbitrable, and will have the right to grant legal and equitable relief including injunctive relief and the right to grant permanent and interim injunctive relief, and final and interim damages awards. The Arbitrator will also have the discretion to award costs, including reasonable legal fees and expenses, reasonable expert’s fees and expenses, reasonable witnesses’ fees and expenses pre-award and post-award interest and costs of the arbitration, provided that the Arbitrator will not make an award of costs on a distributive basis;

 

9.1.8 the Parties intend, and will take all reasonable action as is necessary or desirable to ensure, that there be a speedy resolution to any Dispute, and the Arbitrator will conduct the arbitration of the Dispute with a view to making a determination and order as soon as possible;

 

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9.1.9 the Parties desire that any arbitration should be conducted in strict confidence and that there will be no disclosure to any Person of the existence or any aspect of a Dispute except as is necessary for the resolution of the Dispute. Any proceedings before the Arbitrator will be attended only by those Persons whose presence, in the opinion of any Party or the Arbitrator, is reasonably necessary for the resolution of the Dispute. All matters relating to, all evidence presented to, all submissions made in the course of, and all documents produced in accordance with, an arbitration under this Article, as well as any arbitral award, will be kept confidential and will not be disclosed to any Person without the prior written consent of all the Parties except as required in connection with an application of a Party under Section 46 or Section 50 of the Arbitration Act, by applicable Laws (including, without limitation, requirements of securities Laws or stock exchange rules), or by an order of an Arbitrator; and

 

9.1.10 subject to Section 44 of the Arbitration Act, all awards and determinations of the Arbitrator will be final and binding on the Parties, and there will be no appeal of any such award or determination on any grounds.

 

9.2 Interim Relief

 

9.2.1 Prior to the appointment of the Arbitrator, the Parties may apply to the courts for interim relief. A request for interim relief by a Party to a court will not be considered to be incompatible with Section 9.1 or as a waiver of that provision.

 

9.2.2 At the request of any Party, the Arbitrator may take any interim measures that the Arbitrator considers necessary in respect of the Dispute, including measures for the preservation of assets, the conservation of goods or the sale of perishable goods. The Arbitrator may require security for the costs of those measures.

 

Article 10
GENERAL

 

10.1 Time of Essence

 

Time is of the essence in all respects of this Agreement.

 

10.2 Notices

 

Any Communication to the Buyer must be in writing and either delivered personally or by courier or sent by prepaid registered mail. Any Communication to the Sellers must be in writing and either delivered personally or by email.

 

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Any Communication must be sent to the intended recipient at its address as follows:

 

to the Sellers or a Seller, as applicable, at:

 

Peterson Partners
400-2825 East Cottonwood Parkway
Salt Lake City, UT 84121

 

with a copy (for information purposes only) to:

 

Gowling WLG (Canada) LLP

1020-50 Queen Street North

P.O. Box 2248

Kitchener, ON N2H 6M2

Attention: W. David Petras
E-mail: david.petras@gowlingwlg.com

Sugnet Insurance Group, Inc.

 

with a copy (for information purposes only) to:

 

Gowling WLG (Canada) LLP

1020-50 Queen Street North

P.O. Box 2248

Kitchener, ON N2H 6M2

Attention: W. David Petras
E-mail: david.petras@gowlingwlg.com

 

Hiten Varia

 

with a copy (for information purposes only) to:

 

Gowling WLG (Canada) LLP

1020-50 Queen Street North

P.O. Box 2248

Kitchener, ON N2H 6M2

Attention: W. David Petras
E-mail: david.petras@gowlingwlg.com

 

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GTM Advantage 401K Plan, for the benefit of Gordon Swartz

 

with a copy (for information purposes only) to:

 

Gowling WLG (Canada) LLP

1020-50 Queen Street North

P.O. Box 2248

Kitchener, ON N2H 6M2

Attention: W. David Petras
E-mail: david.petras@gowlingwlg.com

 

to the Buyer at:

 

Datawatch Corporation
4 Crosby Drive

Bedford, MA 01730

Attention: Chief Financial Officer

E-mail: James_Eliason@datawatch.com

 

with a copy (for information purposes only) to:

 

Choate, Hall & Stewart LLP

Two International Place

Boston, MA 02110

Attention: Robert V. Jahrling
E-mail: rjahrling@choate.com

 

or at any other address as any Party may at any time advise the other by Communication given or made in accordance with this Section 10.2. Any Communication delivered to the Party to whom it is addressed will be deemed to have been given or made and received on the day it is delivered at that Party’s address, provided that if that day is not a Business Day then the Communication will be deemed to have been given or made and received on the next Business Day. Any Communication sent by prepaid registered mail will be deemed to have been given or made and received on the fifth Business Day after which it is mailed. If a strike or lockout of postal employees is then in effect, or generally known to be impending, every Communication must be delivered personally or by courier or transmitted by facsimile, e-mail or functionally equivalent electronic means of transmission. Any Communication transmitted by facsimile, e-mail or other functionally equivalent electronic means of transmission will be deemed to have been given or made and received on the day on which it is transmitted; but if the Communication is transmitted on a day which is not a Business Day or after 5:00 pm (local time of the recipient), the Communication will be deemed to have been given or made and received on the next Business Day.

 

10.3 Severability

 

Each Section of this Agreement is distinct and severable. If any Section of this Agreement, in whole or in part, is or becomes illegal, invalid, void, voidable or unenforceable in any jurisdiction by any court of competent jurisdiction, the illegality, invalidity or unenforceability of that Section, in whole or in part, will not affect:

 

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10.3.1 the legality, validity or enforceability of the remaining Sections of this Agreement, in whole or in part; or

 

10.3.2 the legality, validity or enforceability of that Section, in whole or in part, in any other jurisdiction.

 

10.4 Submission to Jurisdiction

 

Subject to the provisions of Section 2.7 and 6.3, each of the Parties irrevocably and unconditionally submits and attorns to the exclusive jurisdiction of the courts of the Province of Ontario to determine all issues, whether at law or in equity arising from this Agreement.

 

10.5 Amendment and Waiver

 

The provisions of this Agreement may be modified, amended or waived at any time only by a writing signed by (a) the Buyer, (b) the Corporation and (c) the Equityholders, and any such modification, amendment or waiver shall be binding on each of the parties hereto, including the Equityholders. No waiver of, failure to exercise or delay in exercising, any Section of this Agreement constitutes a waiver of any other Section (whether or not similar) nor does any waiver constitute a continuing waiver unless otherwise expressly provided.

 

10.6 Further Assurances

 

Each Party will, at the requesting Party’s cost and expense, execute and deliver any further agreements and documents and provide any further assurances, undertakings and information as may be reasonably required by the requesting Party to give effect to this Agreement and, without limiting the generality of this Section 10.6, will do or cause to be done all acts and things, execute and deliver or cause to be executed and delivered all agreements and documents and provide any assurances, undertakings and information as may be required at any time by all Governmental Authorities to give effect to this Agreement.

 

10.7 Assignment and Enurement

 

Neither this Agreement nor any right or obligation under this Agreement may be assigned by any Party without the prior written consent of the other Parties; provided, however, that the Buyer may collaterally assign its rights under this Agreement to its bona fide lenders. This Agreement enures to the benefit of and is binding upon the Parties and their respective heirs, executors, successors and permitted assigns.

 

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10.8 Counterparts and Electronic Delivery

 

This Agreement may be executed and delivered by the Parties in one or more counterparts, each of which will be an original, and each of which may be delivered by facsimile, e-mail or other functionally equivalent electronic means of transmission, and those counterparts will together constitute one and the same instrument.

 

10.9 Costs and Expenses

 

Except as otherwise specified in this Agreement, all costs and expenses (including the fees and disbursements of accountants, financial advisors, legal counsel and other professional advisers) incurred in connection with this Agreement, the obligations under this Agreement and the completion of the transactions contemplated by this Agreement, are to be paid by the Party incurring those costs and expenses. If there is a breach of this Agreement or this Agreement is terminated, the obligation of each Party to pay its own costs and expenses is subject to each Party’s respective rights arising from a breach or termination.

 

10.10 Schedules and Exhibits

 

All schedules and exhibits to this Agreement are an integral part of this Agreement and are incorporated herein by reference in this Agreement for all purposes of this Agreement. All Schedules delivered with this Agreement shall be arranged to correspond with the numbered and lettered Sections and Subsections contained in this Agreement, and the disclosures in such Schedules shall qualify only the corresponding Sections and Subsections contained in this Agreement unless it is reasonably apparent on its face that the disclosures on such Section or Subsection apply to other representations and warranties.

 

10.11 Tender

 

Any tender of documents or money under this Agreement may be made upon the Parties or their respective counsel.

 

10.12 Public Notice

 

All public notices to third parties and all other announcements, press releases and publicity concerning this Agreement or the Transactions contemplated by this Agreement must be jointly planned and co-ordinated by the Securityholder Representative and the Buyer, and neither Party will act unilaterally in this regard without the prior consent of the other Party unless, and only to the extent that, disclosure is required to meet the timely disclosure obligations of any Party under applicable securities Laws or stock exchange rules in circumstances where prior consultation with the other Party is not practicable, or the disclosure is to the Party’s board of directors, senior management and its legal, accounting, financial or other professional advisers.

 

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10.13 Remedies Cumulative

 

The rights, powers and remedies under this Agreement are cumulative and are in addition to and not in substitution for any other rights, powers and remedies available at law or in equity or otherwise. No single or partial exercise by a Party of any right, power or remedy precludes or otherwise affects the exercise of any other right, power or remedy to which that Party may be entitled.

 

10.14 Payment and Currency

 

Any money to be advanced, paid or tendered by one Party to another under this Agreement must be advanced, paid or tendered by wire transfer of immediately available funds payable to the Person to whom the amount is due. Unless otherwise specified, the word “dollar” and the “$” sign refer to United States currency, and all amounts to be advanced, paid, tendered or calculated under this Agreement are to be advanced, paid, tendered or calculated in United States currency.

 

10.15 No Contra Proferentem

 

This Agreement has been reviewed by each Party’s professional advisors (or they have had an opportunity to do so), and revised during the course of negotiations between the Parties. Each Party acknowledges that this Agreement is the product of their joint efforts, that it expresses their agreement, and that, if there is any ambiguity in any of its provisions, that provision should not be interpreted in favour of any one of them under the contra proferentem rule.

 

10.16 Independent Legal Advice

 

Each of the Parties acknowledges that it or he has read and understands the terms and conditions of this Agreement and acknowledges and agrees that it or he has had the opportunity to seek, and was not prevented or discouraged by any other Party to this Agreement from seeking, any independent legal advice which it or he considered necessary before the execution and delivery of this Agreement and that, if it or he did not avail itself or himself of that opportunity before signing this Agreement, it or he did so voluntarily without any undue pressure, and agrees that its or his failure to obtain independent legal advice will not be used by it or him as a defence to the enforcement of its or his obligations under this Agreement.

 

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

 

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Each of the Parties has executed and delivered this Agreement as of the date noted at the beginning of the Agreement.

 

  ANGOSS SOFTWARE CORPORATION
   
  By: /s/ Brandon K. Cope
    Name: Brandon K. Cope
    Title: CEO
     
    I have authority to bind the corporation

 

  2617421 ONTARIO INC.
   
  By: /s/ James Eliason
    Name: James Eliason
    Title: Chief Financial Officer
     
    I have authority to bind the corporation

 

  PETERSON PARTNERS (BVI) VI, L.P., by its general partner Peterson Partners VI, LLC
   
  By: /s/ Eric Noble
    Name: Eric Noble
    Title: CFO & Authorized Signatory
     
    I have authority to bind the company

 

  SUGNET INSURANCE GROUP INC.
   
  By: /s/ Randy Shumway
    Name: Randy Shumway
    Title: Manager
     
    I have authority to bind the company

 

Share Purchase Agreement

 

 

 

 

  GTM ADVANTAGE 401K PLAN, for the benefit of Gordon Swartz
   
  By: /s/ Gordon S. Swartz
    Name: Gordon S. Swartz
    Title: Trustee, GTM Advantage Corp. 401K
     
    I have authority to bind the 401K Plan

 

    /s/ Hiten Varia
    Hiten Varia

 

    /s/ Brandon K. Cope
    Brandon Cope

 

    /s/ Randy Shumway
    Randy Shumway

 

Share Purchase Agreement

 

 

 

 

Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of January 24, 2018 (the “ Effective Date ”) between SILICON VALLEY BANK , a California corporation (“ Bank ”), and DATAWATCH CORPORATION , a Delaware corporation (“ Borrower ”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

 

1 ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Notwithstanding the foregoing, except as explicitly set forth herein, all financial covenant and other financial calculations shall be computed with respect to Borrower on a consolidated basis with its Subsidiaries. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

 

2 LOAN AND TERMS OF PAYMENT

 

2.1          Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

 

2.2 Revolving Line.

 

(a)           Availability . Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

 

(b)           Termination; Repayment . The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

 

2.3 Term Loan.

 

(a)           Availability . Subject to the terms and conditions of this Agreement, on the Effective Date Borrower shall request and Bank shall make one (1) term loan advance in the original principal amount of Ten Million Dollars ($10,000,000.00) (the “ Term Loan Advance ”). After repayment, the Term Loan Advance (or any portion thereof) may not be reborrowed.

 

(b)           Interest Payments . Commencing on February 1, 2018 and continuing on each Payment Date thereafter, Borrower shall make monthly payments of interest, in arrears, on the principal amount of the Term Loan Advance at the rate set forth in Section 2.5(a)(ii).

 

(c)           Repayment . Commencing on March 1, 2018 and continuing on each Payment Date thereafter, Borrower shall repay the Term Loan Advance in (i) equal monthly installments of principal based upon a forty-eight (48) month amortization schedule, plus (ii) monthly payments of accrued interest at the rate set forth in Section 2.5(a)(ii). All outstanding principal and accrued and unpaid interest under the Term Loan Advance, and all other outstanding Obligations with respect to the Term Loan Advance, are due and payable in full on the Term Loan Maturity Date.

 

     

 

  

(d)           Permitted Prepayment . Borrower shall have the option to prepay all or in an amount equal to fifty percent (50.0%) of the principal amount of the Term Loan Advance outstanding, provided Borrower (i) delivers written notice to Bank of its election to prepay the Term Loan Advance at least ten (10) days prior to such prepayment along with a notice of the portion of the principal amount being prepaid, and (ii) pays, on the date of such prepayment (A) the outstanding principal being prepaid (which shall either be fifty percent (50.0%) or one hundred percent (100.0%) of the principal outstanding) plus accrued and unpaid interest with respect to the Term Loan Advance, (B) the Prepayment Fee and (C) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advance, including interest at the Default Rate with respect to any past due amounts. Any partial prepayment of principal with respect to the Term Loan Advance made under this Section 2.3(d) will be applied to the principal balance of the Term Loan Advance in the inverse order of maturity.

 

(e)           Mandatory Prepayment Upon an Acceleration . If the Term Loan Advance is accelerated by Bank following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal plus accrued and unpaid interest with respect to the Term Loan Advance, (ii) the Prepayment Fee and (iii) all other sums, if any, that shall have become due and payable with respect to the Term Loan Advance, including interest at the Default Rate with respect to any past due amounts.

 

2.4          Overadvances. If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash the amount of such excess (such excess, the “ Overadvance ”). Without limiting Borrower’s obligation to repay Bank any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at a per annum rate equal to the rate that is otherwise applicable to Advances plus five percent (5.0%). Notwithstanding the foregoing, in the event that an Overadvance results solely from a change by Bank to the Borrowing Base percentage, Borrower shall have two (2) Business Days to repay the portion of such Overadvance resulting from such change.

 

2.5 Payment of Interest on the Credit Extensions.

 

(a)           Interest Rate .

 

(i)           Advances . Subject to Section 2.5(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to one-half of one percent (0.50%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.5(d) below.

 

(ii)          Term Loan Advance . Subject to Section 2.5(b), the principal amount outstanding under the Term Loan Advance shall accrue interest at a floating per annum rate equal to one percent (1.0%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.5(d) below.

 

(b)           Default Rate . Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percent (5.0%) above the rate that is otherwise applicable thereto (the “ Default Rate ”). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.5(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(c)           Adjustment to Interest Rate . Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

 

(d)           Payment; Interest Computation . Interest is payable monthly on the Payment Date of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Eastern time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.

 

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2.6          Fees. Borrower shall pay to Bank:

 

(a)           Term Loan Commitment Fee . A fully earned, non-refundable commitment fee of Fifty Thousand Dollars ($50,000.00), on the Effective Date;

 

(b)           Revolving Line Commitment Fee . A fully earned, non-refundable commitment fee of Seventeen Thousand Five Hundred Dollars ($17,500.00), on the Effective Date;

 

(c)           Prepayment Fee . The Prepayment Fee, when due hereunder;

 

(d)           Unused Revolving Line Facility Fee . Payable monthly in arrears on the last day of each calendar month occurring prior to the Revolving Line Maturity Date, and on the Revolving Line Maturity Date, a fee (the “ Unused Revolving Line Facility Fee ”) in an amount equal to one-quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined by Bank, computed on the basis of a year with the applicable number of days as set forth in Section 2.5(d). The unused portion of the Revolving Line, for purposes of this calculation, shall be calculated on a calendar year basis and shall equal the difference between (i) the Revolving Line, and (ii) the average for the period of the daily closing balance of the Revolving Line outstanding; and

 

(e)           Bank Expenses . All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).

 

Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder. Bank may deduct amounts owing by Borrower under the clauses of this Section 2.6 pursuant to the terms of Section 2.7(c). Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.6, of which Bank will endeavor to provide within five (5) days of any such deduction.

 

2.7 Payments; Application of Payments; Debit of Accounts.

 

(a)          All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Eastern time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Eastern time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b)          Subject to the provisions of Sections 2.3(c) and (d) with respect to the Term Loan Advance, Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied. Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

 

(c)          Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.

 

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2.8          Withholding. Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto). Specifically, however, if at any time any Governmental Authority, applicable law, regulation or international agreement requires Borrower to make any withholding or deduction from any such payment or other sum payable hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority. Borrower will, upon request, furnish Bank with proof reasonably satisfactory to Bank indicating that Borrower has made such withholding payment; provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.8 shall survive the termination of this Agreement.

 

3 CONDITIONS OF LOANS

 

3.1          Conditions Precedent to Initial Credit Extension. Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

 

(a)          duly executed original signatures to the Loan Documents;

 

(b)          duly executed original signatures to the Control Agreements;

 

(c)          the Operating Documents and long-form good standing certificates of Borrower certified by the Secretary of State (or equivalent agency) of Delaware and each other state in which Borrower is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;

 

(d)          a secretary’s certificate of Borrower with respect to Borrower’s Operating Documents, incumbency, specimen signatures and resolutions authorizing the execution and delivery of this Agreement and the other Loan Documents to which it is a party;

 

(e)          duly executed original signatures to the completed Borrowing Resolutions for Borrower;

 

(f)           certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

 

(g)          the Perfection Certificate of Borrower, together with the duly executed original signature thereto;

 

(h)          a landlord’s consent in favor of Bank for each of Borrower’s leased locations, by the respective landlord thereof, together with the duly executed original signatures thereto;

 

(i)           a bailee’s waiver in favor of Bank for each location where Borrower maintains property with a third party, by each such third party, together with the duly executed original signatures thereto;

 

(j)           a legal opinion (authority and enforceability) of Borrower’s counsel dated as of the Effective Date together with the duly executed original signature thereto;

 

(k)          copies of the documents evidencing the Angoss Acquisition;

 

(l)           with respect to the initial Advance, the completion of the Initial Audit;

 

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(m)         with respect to the initial Advance, a completed Borrowing Base Report (and any schedules related thereto and including any other information requested by Bank with respect to Borrower’s Accounts); and

 

(n)          payment of the fees and Bank Expenses then due as specified in Section 2.6 hereof.

 

3.2          Conditions Precedent to all Credit Extensions. Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

 

(a)          timely receipt of (i) with respect to requests for Advances, the Credit Extension request and any materials and documents required by Section 3.4 and (ii) with respect to the request for the Term Loan Advance, an executed Payment/Advance Form and any materials and documents required by Section 3.4;

 

(b)          the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the proposed Credit Extension and/or of the Payment/Advance Form, as applicable, and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

 

(c)          Bank determines to its satisfaction that there has not been a Material Adverse Change.

 

3.3          Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

 

3.4          Procedures for Borrowing.

 

(a)           Advances . Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower (via an individual duly authorized by an Administrator) shall notify Bank (which notice shall be irrevocable) by electronic mail by 12:00 p.m. Eastern time on the Funding Date of the Advance. Such notice shall be made by Borrower through Bank’s online banking program, provided, however, if Borrower is not utilizing Bank’s online banking program, then such notice shall be in a written format acceptable to Bank that is executed by an Authorized Signer. Bank shall have received satisfactory evidence that the Board has approved that such Authorized Signer may provide such notices and request Advances. In connection with any such notification, Borrower must promptly deliver to Bank by electronic mail or through Bank’s online banking program such reports and information, including without limitation, sales journals, cash receipts journals, accounts receivable aging reports, and Borrowing Base Reports, as Bank may request in its reasonable discretion. Bank shall credit proceeds of an Advance to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from an Authorized Signer or without instructions if the Advances are necessary to meet Obligations which have become due.

 

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(b)           Term Loan Advance . Subject to the prior satisfaction of all other applicable conditions to the making of the Term Loan Advance set forth in this Agreement, to obtain the Term Loan Advance, Borrower (via an individual duly authorized by an Administrator) shall notify Bank (which notice shall be irrevocable) by electronic mail by 12:00 noon Eastern time on the Funding Date of the Term Loan Advance. Such notice shall be made by Borrower through Bank’s online banking program, provided, however, if Borrower is not utilizing Bank’s online banking program, then such notice shall be in a written format acceptable to Bank that is executed by an Authorized Signer. Bank shall have received satisfactory evidence that the Board has approved that such Authorized Signer may provide such notices and request the Term Loan Advance. In connection with such notification, Borrower must promptly deliver to Bank by electronic mail or through Bank’s online banking program a completed Payment/Advance Form executed by an Authorized Signer together with such other reports and information, as Bank may request in its reasonable discretion. Bank shall credit proceeds of any Term Loan Advance to the Designated Deposit Account. Bank may make the Term Loan Advance under this Agreement based on instructions from an Authorized Signer or without instructions if the Term Loan Advance is necessary to meet Obligations which have become due.

 

4 CREATION OF SECURITY INTEREST

 

4.1          Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

 

Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien in this Agreement).

 

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at the sole cost and expense of Borrower, release its Liens in the Collateral and all rights therein shall revert to Borrower. In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its business judgment), to secure all of the Obligations relating to such Letters of Credit.

 

4.2          Priority of Security Interest. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim in an amount in excess of Two Hundred Fifty Thousand Dollars ($250,000.00), Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

 

4.3          Authorization to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

 

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5 REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1          Due Organization, Authorization; Power and Authority. Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate” (the “ Perfection Certificate ”). Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect), or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.2          Collateral. Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank’s Affiliates except for the Collateral Accounts described in the Perfection Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the terms of Section 6.8(b). The Accounts are bona fide, existing obligations of the Account Debtors.

 

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

 

All Inventory is in all material respects of good and marketable quality, free from material defects.

 

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made that any part of Borrower’s Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

 

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Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

 

5.3          Accounts Receivable.

 

(a)          For each Account with respect to which Advances are requested, on the date each Advance is requested and made, such Account shall be an Eligible Account.

 

(b)          All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Report. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

 

5.4          Litigation. There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, Fifty Thousand Dollars ($50,000.00).

 

5.5          Financial Statements; Financial Condition. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

 

5.6          Solvency. The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

 

5.7          Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law, in the case of (a) or (b) the noncompliance or violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted, except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.

 

5.8          Subsidiaries; Investments. Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.

 

5.9          Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Twenty-Five Thousand Dollars ($25,000.00).

 

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To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the Governmental Authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.” Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower in excess of Twenty-Five Thousand Dollars ($25,000.00). Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

5.10        Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes, and with respect to the Term Loan Advance, for the Angoss Acquisition.

 

5.11        Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

 

5.12        Definition of “Knowledge.” For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

 

6 AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1          Government Compliance.

 

(a)          Except to the extent permitted in Section 7.3 hereof, maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject, noncompliance with which could reasonably be expected to have a material adverse effect on Borrower’s business.

 

(b)          Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.

 

6.2          Financial Statements, Reports, Certificates. Provide Bank with the following:

 

(a)          a Borrowing Base Report (and any schedules related thereto and including any other information reasonably requested by Bank with respect to Borrower’s Accounts) (i) with each request for an Advance and (ii) within thirty (30) days after the end of each month;

 

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(b)          within thirty (30) days after the end of each month, (i) monthly accounts receivable agings, aged by invoice date, (ii) monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, and (iii) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, Deferred Revenue report and general ledger, each in a form acceptable to Bank;

 

(c)          as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (it being acknowledged that the form of such statements delivered by Borrower to Bank prior to the Effective Date is a form acceptable to Bank) (the “ Monthly Financial Statements ”);

 

(d)          within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request;

 

(e)          within thirty (30) days after the earlier to occur of (i) the end of each fiscal year of Borrower and (ii) approval by the Board, and contemporaneously with any updates or amendments thereto, (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by month), and (B) annual financial projections (on a quarterly basis), in each case as approved by the Board, together with any related business forecasts used in the preparation of such annual financial projections;

 

(f)           as soon as available, and in any event within the earlier to occur of (i) ninety (90) days following the end of Borrower’s fiscal year and (ii) within five (5) days of filing with the SEC, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion (other than as to a going concern or a qualification resulting solely from the scheduled maturity of the Credit Extensions occurring within one year from the date such opinion is delivered) on the financial statements from either RSM US LLP or another independent certified public accounting firm reasonably acceptable to Bank;

 

(g)          within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower and/or any Guarantor with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders in accordance with the Exchange Act, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the internet at Borrower’s website address; provided, however, Borrower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;

 

(h)          within five (5) days of delivery, copies of all statements, reports and notices made available to any holders of Subordinated Debt;

 

(i)           prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000.00) or more; and

 

(j)           promptly, from time to time, such other information regarding Borrower or compliance with the terms of any Loan Documents as reasonably requested by Bank.

 

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6.3          Accounts Receivable.

 

(a)           Schedules and Documents Relating to Accounts . Borrower shall deliver to Bank transaction reports and schedules of collections, as provided in Section 6.2, on Bank’s standard forms; provided, however, that Borrower’s failure to execute and deliver the same shall not affect or limit Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s failure to advance or lend against a specific Account affect or limit Bank’s Lien and other rights therein. If reasonably requested by Bank, Borrower shall furnish Bank with copies (or, at Bank’s request, originals) of all contracts, orders, invoices, and other similar documents, and all shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Accounts. In addition, Borrower shall promptly (and in any event within one (1) Business Day) deliver to Bank, after its request, the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos.

 

(b)           Disputes . Borrower shall promptly notify Bank of all disputes or claims relating to Accounts in excess of One Hundred Thousand Dollars ($100,000.00) in the aggregate existing at any time. Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in the ordinary course of business, in arm’s-length transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the lesser of the Revolving Line or the Borrowing Base.

 

(c)           Collection of Accounts . Borrower shall direct Account Debtors to deliver or transmit all proceeds of Accounts into a lockbox account, or via electronic deposit capture into a “blocked account” as specified by Bank (either such account, the “Cash Collateral Account”). Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts to the Cash Collateral Account. Subject to Bank’s right to maintain a reserve pursuant to Section 6.3(d), so long as no Event of Default exists, all amounts received in the Cash Collateral Account shall be transferred on a daily basis to Borrower’s operating account with Bank. Borrower hereby authorizes Bank to transfer to the Cash Collateral Account any amounts that Bank reasonably determines are proceeds of the Accounts (provided that Bank is under no obligation to do so and this allowance shall in no event relieve Borrower of its obligations hereunder).

 

(d)           Reserves . Notwithstanding any terms in this Agreement to the contrary, at times when an Event of Default exists, Bank may hold any proceeds of the Accounts and any amounts in the Cash Collateral Account that are not applied to the Obligations pursuant to Section 6.3(c) above (including amounts otherwise required to be transferred to Borrower’s operating account) as a reserve to be applied to any Obligations regardless of whether such Obligations are then due and payable.

 

(e)           Returns . Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Bank, upon request from Bank. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust for Bank, and immediately notify Bank of the return of the Inventory.

 

(f)            Verifications; Confirmations; Credit Quality; Notifications . Following the occurrence and during the continuance of an Event of Default, Bank may, from time to time, (i) verify and confirm directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose, and notify any Account Debtor of Bank’s security interest in such Account and/or (ii) conduct a credit check of any Account Debtor to approve any such Account Debtor’s credit.

 

(g)           No Liability . Bank shall not be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Borrower’s obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence or willful misconduct.

 

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6.4          Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations (a) prior to an Event of Default, pursuant to the terms of Section 6.3(c) hereof, and (b) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided that, if no Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank the proceeds of the sale of assets to the extent permitted by Section 7.1; provided, however, that Borrower shall remit such proceeds to Bank with respect to any Transfer in connection with Section 7.1(b) to the extent that such proceeds exceed One Hundred Thousand Dollars ($100,000.00) in the aggregate (for all such transactions in any fiscal year). To the extent that Borrower is required to remit the proceeds to Bank, Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower’s other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Bank. Nothing in this Section 6.4 limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement.

 

6.5          Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

 

6.6          Access to Collateral; Books and Records. At reasonable times, on two (2) Business Days’ prior notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower’s Books. The foregoing inspections and audits shall be conducted no more often than twice every twelve (12) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary. The foregoing inspections and audits shall be conducted at Borrower’s expense and the charge therefor shall be One Thousand Dollars ($1,000.00) per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to or reschedules the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies) Borrower shall pay Bank a fee of One Thousand Dollars ($1,000.00) plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling. Borrower acknowledges that the first such audit will occur within thirty (30) days of the Effective Date.

 

6.7          Insurance.

 

(a)          Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location. Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are standard for companies in Borrower’s industry and location. All property policies shall have a lender’s loss payable endorsement showing Bank as the sole lender loss payee. All liability policies shall show, or have endorsements showing, Bank as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.

 

(b)          Ensure that proceeds payable under any property policy are, at Bank’s option, payable to Bank on account of the Obligations.

 

(c)          At Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments. Each provider of any such insurance required under this Section 6.7 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice before any such policy or policies shall be materially altered or canceled. If Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.7, and take any action under the policies Bank reasonably deems prudent.

 

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6.8          Accounts.

 

(a)          Maintain all of its and all of its Domestic Subsidiaries’ operating and other deposit accounts, the Cash Collateral Account and securities/investment accounts with Bank and Bank’s Affiliates. Any Guarantor shall maintain all depository, operating and securities/investment accounts with Bank and Bank’s Affiliates.

 

(b)          In addition to and without limiting the restrictions in (a), Borrower shall provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Bank (in its sole discretion) permits Borrower to open or maintain at any time, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes, and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

 

6.9          Financial Covenants.

 

(a)           Adjusted Quick Ratio . To be tested as of the last day of each month, have an Adjusted Quick Ratio of at least (i) 1.25 to 1.0 for the month ending December 31, 2017, (ii) 1.10 to 1.0 for the months ending January 31, 2018 and February 28, 2018, (iii) 1.25 to 1.0 for the month ending March 31, 2018, (iv) 1.10 to 1.0 for the months ending April 30, 2018 and May 31, 2018 and (v) 1.25 to 1.0 for the month ending June 30, 2018 and for each month thereafter.

 

(b)           Trailing Three Month Adjusted EBITDA . To be tested as of the last day of each calendar quarter, have Adjusted EBITDA for the trailing three (3) month period ending on such day, of at least (a) ($3,000,000.00) for the trailing three (3) month period ending March 31, 2018, (b) ($1,000,000.00) for the trailing three (3) month period ending June 30, 2018, (c) ($250,000.00) for the trailing three (3) month period ending September 30, 2018, (d) $1.00 for the trailing three (3) month period ending December 31, 2018, (e) $250,000.00 for the trailing three (3) month period ending March 31, 2019, (f) $500,000.00 for the trailing three (3) month period ending June 30, 2019, (g) $750,000.00 for the trailing three (3) month period ending September 30, 2019 and (h) $1,000,000.00 for the trailing three (3) month period ending December 31, 2019 and for each trailing three (3) month period ending on the last day of each calendar quarter thereafter.

 

6.10        Protection of Intellectual Property Rights.

 

(a)          Use commercially reasonable efforts to (i) protect, defend and maintain the validity and enforceability of the Intellectual Property material to its business; (ii) promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

 

(b)          Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

 

6.11        Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

 

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6.12        Online Banking.

 

(a)          Utilize Bank’s online banking platform for all matters requested by Bank which shall include, without limitation (and without request by Bank for the following matters), uploading information pertaining to Accounts and Account Debtors, requesting approval for exceptions, requesting Credit Extensions, and uploading financial statements and other reports required to be delivered by this Agreement (including, without limitation, those described in Section 6.2 of this Agreement).

 

(b)          Comply with the terms of the “Banking Terms and Conditions” and ensure that all persons utilizing the online banking platform are duly authorized to do so by an Administrator. Bank shall be entitled to assume the authenticity, accuracy and completeness on any information, instruction or request for a Credit Extension submitted via the online banking platform and to further assume that any submissions or requests made via the online banking platform have been duly authorized by an Administrator.

 

6.13        Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received, copies of all material correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or of its Subsidiaries taken as a whole.

 

6.14        Joinder of Angoss. No later than fifteen (15) Business Days following the closing of the Angoss Acquisition, Borrower shall (a) cause Angoss to provide to Bank a joinder to this Agreement to cause Angoss to become a co-borrower hereunder, together with such appropriate documents, all in form and substance reasonably satisfactory to Bank (including being sufficient to grant Bank a first priority Lien in and to the assets of Angoss), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in Angoss, in form and substance reasonably satisfactory to Bank, and (c) provide to Bank all other documentation in form and substance reasonably satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above, including, without limitation, one or more opinions of counsel reasonably satisfactory to Bank. Any document, agreement, or instrument executed or issued pursuant to this Section 6.14 shall be a Loan Document.

 

6.15        Post-Closing Requirement . Deliver to Bank, within thirty (30) days of the Effective Date, evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.7 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank.

 

7 NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

7.1          Dispositions. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out, obsolete or other Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any stock of Borrower to the extent not prohibited under Section 7.2 of this Agreement; (e) consisting of Borrower’s and its Subsidiaries’ use or transfer of money or Cash Equivalents in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; (f) consisting of distributions, dividends or payments of the type described in, and permitted pursuant to, Section 7.7; (g) consisting of any sale or issuance by any Subsidiary of Borrower of its own capital stock to Borrower; (h) consisting of any sublease of real property by Borrower not constituting Indebtedness and not entered into as part of a sale and leaseback transaction; (i) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; and (j) settlements, discounts, write-offs for bad debt and other similar reductions to Accounts in the ordinary course of business, in each case in accordance with GAAP and in accordance with Section 6.3(b).

 

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7.2          Changes in Business, Management, Control, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve (provided that any Subsidiary of Borrower which is not a Borrower or a Guarantor may liquidate or dissolve if its assets are transferred to Borrower or another Subsidiary of Borrower); (c) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by Borrower within five (5) days after any such Key Person’s departure from Borrower; or (d) permit or suffer any Change in Control.

 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Twenty-Five Thousand Dollars ($25,000.00) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Twenty-Five Thousand Dollars ($25,000.00) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Twenty-Five Thousand Dollars ($25,000.00) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower and such bailee shall first execute and deliver a bailee agreement in form and substance reasonably satisfactory to Bank.

 

7.3          Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (including, without limitation, by the formation of any Subsidiary). A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. Notwithstanding the foregoing, Bank agrees that Borrower may enter into the Angoss Acquisition provided that Bank’s consent to such acquisition is conditioned upon (a) Borrower not assuming or incurring any Indebtedness or Liens in connection with the Angoss Acquisition, (b) Borrower not using or transferring any of its cash or other property in connection with the Angoss Acquisition except for (i) Twenty-Four Million Five Hundred Thousand Dollars ($24,500,000.00) in cash to be paid as the purchase price at the closing of the Angoss Acquisition, (ii) any working capital adjustments and (iii) One Million Five Hundred Thousand Dollars ($1,500,000.00) for expenses and other costs directly related to the Angoss Acquisition, (c) Borrower being a surviving legal entity after the Angoss Acquisition, (d) no Event of Default having occurred and continuing and no Event of Default existing after giving effect to the Angoss Acquisition and (e) Bank receiving fully-executed copies of the Share Purchase Agreement and the other documents in connection with the Angoss Acquisition.

 

7.4          Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

 

7.5          Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien in this Agreement),or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

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7.6          Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.8(b) hereof.

 

7.7          Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock provided that Borrower may (i) pay dividends solely in common stock and (ii) Borrower’s Subsidiaries may pay dividends to Borrower; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so.

 

7.8          Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for (a) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person, (b) transactions of the type described in and permitted by Sections 7.3, 7.4 or 7.7 hereof, (c) the payment of compensation, severance or employee benefit arrangements to employees, officers and directors of Borrower and its Subsidiaries in the ordinary course of business and (d) any indemnity provided to employees, officers, and directors of Borrower or any of its Subsidiaries solely in such Person’s capacity as an employee, officer or director and to the extent not otherwise prohibited by this Agreement.

 

7.9          Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt, except as permitted under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject.

 

7.10        Compliance. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation or failure to comply could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

8 EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “ Event of Default ”) under this Agreement:

 

8.1          Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date or the Term Loan Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

 

8.2          Covenant Default.

 

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3, 6.4, 6.5, 6.6, 6.8, 6.9, 6.10(b), 6.12, 6.14, or 6.15 or violates any covenant in Section 7; or

 

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(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

 

8.3          Material Adverse Change. A Material Adverse Change occurs;

 

8.4          Attachment; Levy; Restraint on Business.

 

(a)          (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary), or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or

 

(b)           (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;

 

8.5          Insolvency. (a) Borrower or any of its Subsidiaries is generally unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and is not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6          Other Agreements. There is, under any agreement to which Borrower or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Three Hundred Fifty Thousand Dollars ($350,000.00); or (b) any breach or default by Borrower or any Guarantor, the result of which could reasonably be expected to have a material adverse effect on Borrower’s and the Guarantor’s business taken as a whole;

 

8.7          Judgments; Penalties. One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least Three Hundred Fifty Thousand Dollars ($350,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

 

8.8          Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

 

8.9          Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or any applicable subordination or intercreditor agreement;

 

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8.10        Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal causes, or could reasonably be expected to cause, a Material Adverse Change; or

 

8.11        Subsidiary Cash . Borrower’s Subsidiaries (which are not a Borrower) acquire, receive, own or hold cash or Cash Equivalents in an aggregate amount (for all such Subsidiaries together) of greater than Three Million Dollars ($3,000,000.00) at any time.

 

9 BANK’S RIGHTS AND REMEDIES

 

9.1          Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:

 

(a)          declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

 

(b)          stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

 

(c)          demand that Borrower (i) deposit cash with Bank in an amount equal to at least (A) one hundred five percent (105.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit denominated in Dollars remaining undrawn, and (B) one hundred ten percent (110.0%) of the Dollar Equivalent of the aggregate face amount of all Letters of Credit denominated in a Foreign Currency remaining undrawn (plus, in each case, all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

 

(d)          terminate any FX Contracts;

 

(e)          verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Bank’s security interest in such funds. Borrower shall collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the Account Debtor, with proper endorsements for deposit;

 

(f)           make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

 

(g)          apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) amount held by Bank owing to or for the credit or the account of Borrower;

 

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(h)          ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

(i)           place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

 

(j)           demand and receive possession of Borrower’s Books; and

 

(k)          exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

 

9.2          Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable following the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks, payment instruments, or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) demand, collect, sue, and give releases to any Account Debtor for monies due, settle and adjust disputes and claims about the Accounts directly with Account Debtors, and compromise, prosecute, or defend any action, claim, case, or proceeding about any Collateral (including filing a claim or voting a claim in any bankruptcy case of a Person other than Borrower in Bank’s or Borrower’s name, as Bank chooses); (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, or other claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and the Loan Documents have been terminated. Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and the Loan Documents have been terminated.

 

9.3          Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.7 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

 

9.4          Application of Payments and Proceeds. If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

 

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9.5          Bank’s Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

 

9.6          No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

 

9.7          Demand Waiver. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

 

10 NOTICES

 

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

  If to Borrower: DATAWATCH CORPORATION
    4 Crosby Drive
    Bedford, Massachusetts 01730
    Attn:  Jim Eliason, Chief Financial Officer
    Email:  Jim_Eliason@datawatch.com
     
  with a copy to: Choate, Hall & Stewart LLP
    Two International Place
    Boston, MA  02110
    Attn:   Stephen J. Tonkovich
    Fax:   617-248-4000
    Email:  stonkovich@choate.com
     
  If to Bank: Silicon Valley Bank
    275 Grove Street, Suite 2-200
    Newton, Massachusetts 02466
    Attn:     Mr. Chris Michael
    Fax:       (617) 527-0177
    Email:   CMichael@svb.com
     
  with a copy to: Riemer & Braunstein LLP
    Three Center Plaza
    Boston, Massachusetts 02108
    Attn: David A. Ephraim, Esquire
    Fax: (617) 880-3456
    Email: DEphraim@riemerlaw.com

 

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11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

 

Except as otherwise expressly provided in any of the Loan Documents, Massachusetts law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Massachusetts; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

This Section 11 shall survive the termination of this Agreement.

 

12 GENERAL PROVISIONS

 

12.1        Termination Prior to Maturity Date; Survival. All covenants, representations and warranties made in this Agreement shall continue in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied. So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, and any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), this Agreement may be terminated prior to the Revolving Line Maturity Date and the Term Loan Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank. Those obligations that are expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’s termination.

 

12.2        Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents. Notwithstanding the foregoing, so long as no Event of Default shall have occurred and is continuing, Bank shall not assign its interest in the Loan Documents to any Person who in the reasonable estimation of Bank is (a) a direct competitor of Borrower, whether as an operating company or direct or indirect parent with voting control over such operating company, or (b) a vulture fund or distressed debt fund.

 

12.3        Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “ Indemnified Person ”) harmless against: (i) all obligations, demands, claims, and liabilities (collectively, “ Claims ”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

 

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This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.

 

12.4        Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement.

 

12.5        Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

12.6        Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties.

 

12.7        Amendments in Writing; Waiver; Integration. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

 

12.8        Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

 

12.9        Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “ Bank Entities ”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, that any prospective transferee or purchaser shall have entered into an agreement containing provisions substantially the same as those in this Section 12.9); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

 

Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Borrower. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

 

12.10     Electronic Execution of Documents. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

 

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12.11     Right of Setoff. Borrower hereby grants to Bank a Lien and a right of setoff as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a subsidiary of Bank) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may setoff the same or any part thereof and apply the same to any liability or Obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.12     Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

12.13     Construction of Agreement. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

12.14     Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

12.15     Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

13 DEFINITIONS

 

13.1        Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:

 

Account ” is, as to any Person, any “ account ” of such Person as “account” is defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to such Person.

 

Account Debtor ” is any “ account debtor ” as defined in the Code with such additions to such term as may hereafter be made.

 

Adjusted EBITDA ” shall mean, calculated on a consolidated basis, (a) Net Income, plus (b) to the extent deducted in the calculation of Net Income (i) Interest Expense, (ii) depreciation expense and amortization expense, (iii) income tax expense and (iv) non-cash Intellectual Property amortization (to the extent not included in the calculation of (ii)), (v) any cash received from future billing obligations acquired in connection with the Angoss Acquisition which is not otherwise recognized as revenue, (vi) non-cash stock based compensation and (vii) any increase in Deferred Revenue from the immediately preceding three (3) month period, minus (c) to the extent included in the calculation of Net Income, (i) any decrease in Deferred Revenue from the immediately preceding three (3) month period, (ii) unfinanced capital expenditures, and (iii) capitalized software development costs.

 

Adjusted Quick Ratio ” is, calculated on a consolidated basis for Borrower and its Subsidiaries, the ratio of (a) Quick Assets to (b) Current Liabilities minus the current portion of Deferred Revenue.

 

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Administrator ” is an individual that is named:

 

(a)        as an “Administrator” in the “SVB Online Services” form completed by Borrower with the authority to determine who will be authorized to use SVB Online Services (as defined in the “Banking Terms and Conditions”) on behalf of Borrower; and

 

(b)        as an Authorized Signer of Borrower in an approval by the Board.

 

Advance ” or “ Advances ” means a revolving credit loan (or revolving credit loans) under the Revolving Line.

 

Affiliate ” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members. For purposes of the definition of Eligible Accounts, Affiliate shall include a Specified Affiliate.

 

Agreement ” is defined in the preamble hereof.

 

Angoss ” is Angoss Software Corporation, a Canadian corporation.

 

Angoss Acquisition ” is the acquisition by Borrower of all of the capital stock of Angoss after the Effective Date.

 

Authorized Signer ” is any individual listed in Borrower’s Borrowing Resolution who is authorized to execute the Loan Documents, including making (and executing if applicable) any Credit Extension request, on behalf of Borrower.

 

Availability Amount ” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any Advances.

 

Bank ” is defined in the preamble hereof.

 

Bank Entities ” is defined in Section 12.9.

 

Bank Expenses ” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred in connection with the Loan Documents with respect to Borrower or any Guarantor.

 

Bank Services ” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).

 

Bank Services Agreement ” is defined in the definition of Bank Services.

 

Board ” is Borrower’s board of directors.

 

Borrower ” is defined in the preamble hereof.

 

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Borrower’s Books ” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

 

Borrowing Base ” is eighty percent (80.0%) of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Report (and as may subsequently be updated by Bank based upon information received by Bank including, without limitation, Accounts that are paid and/or billed following the date of the Borrowing Base Report); provided, however, that, upon notice to Borrower, Bank has the right to decrease the foregoing percentage in its reasonable business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the Collateral or its value.

 

Borrowing Base Report ” is that certain report of the value of certain Collateral in the form specified by Bank to Borrower from time to time.

 

Borrowing Resolutions ” are, with respect to any Person, those resolutions adopted by such Person’s board of directors (and, if required under the terms of such Person’s Operating Documents, stockholders) and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that set forth as a part of or attached as an exhibit to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents, including making (and executing if applicable) any Credit Extension request, on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

 

Business Day ” is any day that is not a Saturday, Sunday or a day on which Bank is closed.

 

Cash Collateral Account ” is defined in Section 6.3(c).

 

Cash Equivalents ” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.

 

Change in Control ” means (a) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of forty-nine percent (49.0%) or more of the ordinary voting power for the election of directors of Borrower (determined on a fully diluted basis) other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction; or (b) at any time, Borrower shall cease to own and control, of record and beneficially, directly or indirectly, one hundred percent (100.0%) of each class of outstanding capital stock of each Subsidiary of Borrower free and clear of all Liens (except Liens created by this Agreement).

 

Claims ” is defined in Section 12.3.

 

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Code ” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the Commonwealth of Massachusetts; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth of Massachusetts, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

 

Collateral ” is any and all properties, rights and assets of Borrower described on Exhibit A.

 

Collateral Account ” is any Deposit Account, Securities Account, or Commodity Account.

 

Commodity Account ” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

 

Compliance Certificate ” is that certain certificate in the form attached hereto as Exhibit B.

 

Contingent Obligation ” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

Control Agreement ” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

 

Copyrights ” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

 

Credit Extension ” is any Advance, any Overadvance, the Term Loan Advance, or any other extension of credit by Bank for Borrower’s benefit.

 

Currency ” is coined money and such other banknotes or other paper money as are authorized by law and circulate as a medium of exchange.

 

Current Liabilities ” are (a) all obligations and liabilities of Borrower and its Subsidiaries’ to Bank, plus (b) without duplication of (a), the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year.

 

Default Rate ” is defined in Section 2.5(b).

 

Deferred Revenue ” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

 

Deposit Account ” is any “ deposit account ” as defined in the Code with such additions to such term as may hereafter be made.

 

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Designated Deposit Account ” is the account number ending __ (last three digits) maintained by Borrower with Bank (provided, however, if no such account number is included, then the Designated Deposit Account shall be any deposit account of Borrower maintained with Bank as chosen by Bank).

 

Dollars ,” “ dollars ” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

Dollar Equivalent ” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

 

Domestic Subsidiary ” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

 

Effective Date ” is defined in the preamble hereof.

 

Eligible Accounts ” means Accounts owing to Borrower which arise in the ordinary course of Borrower’s business that meet all Borrower’s representations and warranties in Section 5.3, that have been, at the option of Bank, confirmed in accordance with Section 6.3(f) of this Agreement, and are due and owing from Account Debtors deemed creditworthy by Bank in its good faith business judgment. Bank reserves the right at any time after the Effective Date, upon prior or contemporaneous notice to Borrower, to adjust any of the criteria set forth below and to establish new criteria in its reasonable business judgment. Unless Bank otherwise agrees in writing, Eligible Accounts shall not include:

 

(a)          Accounts (i) for which the Account Debtor is Borrower’s Affiliate, officer, employee, investor, or agent, or (ii) that are intercompany Accounts;

 

(b)          Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms;

 

(c)          Accounts with credit balances over ninety (90) days from invoice date;

 

(d)          Accounts owing from an Account Debtor if fifty percent (50%) or more of the Accounts owing from such Account Debtor have not been paid within ninety (90) days of invoice date;

 

(e)          Accounts owing from an Account Debtor (i) which does not have its principal place of business in the United States or (ii) whose billing address (as set forth in the applicable invoice for such Account) is not in the United States, unless in the case of both (i) and (ii) such Accounts are otherwise approved by Bank in writing, provided, however, in no event shall such Accounts exceed twenty-five percent (25.0%) of the Borrowing Base;

 

(f)           Accounts billed from and/or payable to Borrower outside of the United States (sometimes called foreign invoiced accounts);

 

(g)          Accounts in which Bank does not have a first priority, perfected security interest under all applicable laws;

 

(h)          Accounts billed and/or payable in a Currency other than Dollars;

 

(i)           Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts);

 

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(j)           Accounts with or in respect of accruals for marketing allowances, incentive rebates, price protection, cooperative advertising and other similar marketing credits, to the extent of such allowances, rebates or credits, unless otherwise approved by Bank in writing;

 

(k)          Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

(l)           Accounts with customer deposits and/or with respect to which Borrower has received an upfront payment, to the extent of such customer deposit and/or upfront payment;

 

(m)         Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’s payment may be conditional;

 

(n)          Accounts owing from an Account Debtor where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings);

 

(o)          Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts);

 

(p)          Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extent of the amount withheld; sometimes called retainage billings);

 

(q)          Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust;

 

(r)           Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts);

 

(s)          Accounts for which the Account Debtor has not been invoiced;

 

(t)          Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’s business;

 

(u)          Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days (including Accounts with a due date that is more than ninety (90) days from invoice date);

 

(v)          Accounts arising from chargebacks, debit memos or other payment deductions taken by an Account Debtor;

 

(w)         Accounts arising from product returns and/or exchanges (sometimes called “warranty” or “RMA” accounts);

 

(x)          Accounts in which the Account Debtor disputes liability or makes any claim (but only up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding (whether voluntary or involuntary), or becomes insolvent, or goes out of business;

 

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(y)          Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue), other than Deferred Revenue related solely to subscriptions and licenses;

 

(z)          Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25.0%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing; and

 

(aa)        Accounts for which Bank in its reasonable business judgment determines collection to be doubtful, including, without limitation, accounts represented by “refreshed” or “recycled” invoices.

 

Equipment ” is all “ equipment ” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

 

ERISA ” is the Employee Retirement Income Security Act of 1974, and its regulations.

 

Event of Default ” is defined in Section 8.

 

Exchange Act ” is the Securities Exchange Act of 1934, as amended.

 

Foreign Currency ” means lawful money of a country other than the United States.

 

Funding Date ” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

 

FX Contract ” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

 

GAAP ” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

General Intangibles ” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

Governmental Approval ” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

Governmental Authority ” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

Guarantor ” is any Person providing a guaranty in favor of Bank.

 

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Indebtedness ” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

 

Indemnified Person ” is defined in Section 12.3.

 

Initial Audit ” is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s Books, with results satisfactory to Bank in its sole and absolute discretion.

 

Insolvency Proceeding ” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

 

Intellectual Property ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following:

 

(a)          its Copyrights, Trademarks and Patents;

 

(b)          any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how and operating manuals;

 

(c)          any and all source code;

 

(d)          any and all design rights which may be available to such Person;

 

(e)          any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

 

(f)           all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

 

Interest Expense ” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower and its Subsidiaries, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).

 

Inventory ” is all “ inventory ” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

 

Investment ” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

 

Key Person ” is each of Borrower’s (a) Chief Executive Officer, (b) Chief Financial Officer and (c) Chief Operating Officer.

 

Letter of Credit ” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.

 

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Lien ” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

 

Loan Documents ” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Perfection Certificate, any Control Agreement, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other present or future agreement by Borrower and/or any Guarantor with or for the benefit of Bank in connection with this Agreement and/or the provision of Bank Services, all as amended, restated, or otherwise modified.

 

Material Adverse Change ” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.

 

Monthly Financial Statements ” is defined in Section 6.2(c).

 

Net Income ” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.

 

Obligations ” are Borrower’s obligations to pay when due any debts, principal, interest, fees, Bank Expenses, the Prepayment Fee, the Unused Revolving Line Facility Fee, and other amounts Borrower owes Bank now or later, under this Agreement or the other Loan Documents, including, without limitation, all obligations relating to Bank Services and interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents.

 

Operating Documents ” are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

 

Overadvance ” is defined in Section 2.4.

 

Patents ” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

 

Payment/Advance Form ” is that certain form in the form attached hereto as Exhibit C.

 

Payment Date ” is (a) with respect to the Term Loan Advance, the first (1st) calendar day of each month and (b) with respect to Advances, the last calendar day of each month.

 

Perfection Certificate ” is defined in Section 5.1.

 

Permitted Indebtedness ” is:

 

(a)          Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

 

(b)          Indebtedness existing on the Effective Date which is shown on the Perfection Certificate;

 

(c)          Subordinated Debt;

 

(d)          unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

 

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(e)          Indebtedness of any Subsidiary (that is not a Borrower) to Borrower consisting of loans made by Borrower as described in subjection (c) of the definition of Permitted Investments, subject to the cap set forth therein;

 

(f)           Indebtedness in respect of taxes, assessments or governmental charges to the extent that payment thereof shall not at the time be due and payable or with respect to which Borrower or any Guarantor is contesting the amount or validity thereof in accordance with Section 5.9;

 

(g)          Indebtedness consisting of judgments not otherwise constituting an Event of Default under Section 8.7;

 

(h)          Indebtedness secured by Liens permitted under clause (c) of the definition of “Permitted Liens” hereunder;

 

(i)           Indebtedness consisting of overdraft protections incurred in the ordinary course of business with respect to deposit accounts (but only to the extent that Borrower is permitted to maintain such accounts pursuant to Section 6.8 of this Agreement) in which Bank has a first priority perfected security interest (to the extent required by Section 6.8(b));

 

(j)           any Indebtedness of any Borrower to another Borrower; and

 

(k)          extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (j) above, provided that the principal amount thereof is not increased in excess of the applicable caps set forth above.

 

Permitted Investments ” are:

 

(a)          Investments (including, without limitation, Subsidiaries) existing on the Effective Date which are shown on the Perfection Certificate;

 

(b)          Investments consisting of Cash Equivalents;

 

(c)          Investments by (i) Subsidiaries (other than a Borrower) in other Subsidiaries, (ii) Borrower in another Borrower, and (iii) Borrower in Subsidiaries (that are not a Borrower) (including loans described in subsection (e) of the definition of Permitted Indebtedness) for the ordinary and necessary current operating expenses of such Subsidiary in an aggregate amount not to exceed Five Million Dollars ($5,000,000.00) per calendar year;

 

(d)          Investments in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000.00) consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by the Board;

 

(e)          Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;

 

(f)           Investments consisting of deposit accounts (but only to the extent that Borrower is permitted to maintain such accounts pursuant to Section 6.8 of this Agreement) in which Bank has a first priority perfected security interest (to the extent required by Section 6.8(b));

 

(g)          Investments accepted in connection with Transfers permitted by Section 7.1; and

 

  32  

 

  

(h)          Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower.

 

Permitted Liens ” are:

 

(a)          Liens existing on the Effective Date which are shown on the Perfection Certificate or arising under this Agreement or the other Loan Documents;

 

(b)          Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on Borrower’s Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)          purchase money Liens and Liens created pursuant to capital lease obligations (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than Fifty Thousand Dollars ($50,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

 

(a)          Liens of carriers, warehousemen, suppliers, landlords, materialmen, repairmen or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens only secure liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000.00) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

 

(b)          Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

 

(c)          Liens, deposits and pledges to secure the performance of bids, tenders, leases, contracts (other than contracts for the payment of money), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds or other similar obligations arising in the ordinary course of business;

 

(d)          Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

 

(e)          leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

 

(f)           Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions, provided that (i) Bank has a first priority perfected security interest in the amounts held in such deposit and/or securities accounts (to the extent required by Section 6.8(b)) and (ii) such accounts are permitted to be maintained pursuant to Section 6.8 of this Agreement;

 

(g)          the title and interest of, and precautionary financing statements under the applicable UCC (and any similar filing in other jurisdictions governing preference or priority among creditors) with respect to the title, interest and other rights of, a lessor or sublessor in and to personal property leased or subleased (other than through a capital lease), in each case extending only to such leased personal property;

 

(h)          non-exclusive licenses of Intellectual Property granted to third parties in the ordinary course of business; and

 

  33  

 

  

(i)           Liens incurred in the extension, renewal or refinancing of the Indebtedness secured by Liens described in (a) through (h), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness may not increase above the applicable limits otherwise described herein.

 

Person ” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

 

Prepayment Fee ” shall be an additional fee payable to Bank, for a prepayment of the Term Loan Advance, in an amount equal to:

 

(a)         for a prepayment made on or prior to the first (1 st ) anniversary of the Effective Date, one percent (1.0%) of the outstanding principal balance of the Term Loan Advance being prepaid; and

 

(b)         for a prepayment made after the first (1 st ) anniversary of the Effective Date but on or prior to the second (2 nd ) anniversary of the Effective Date, one-half of one percent (0.50%) of the outstanding principal balance of the Term Loan Advance being prepaid.

 

Notwithstanding the foregoing, Bank agrees to waive the Prepayment Fee and no Prepayment Fee is due if all of the following is true: (i) the Angoss Acquisition does not occur within thirty (30) days of the Effective Date, (ii) such prepayment is not made with funds from any other lender and (iii) such prepayment is made on or prior to the date that is thirty (30) days after the Effective Date.

 

Prime Rate ” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement; and provided further that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors); provided that, in the event such rate of interest is less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

 

Quick Assets ” is, on any date, Borrower’s consolidated, unrestricted and unencumbered cash maintained with Bank, plus net billed accounts receivable determined according to GAAP.

 

Registered Organization ” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

 

Requirement of Law ” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

Reserves ” means, as of any date of determination, such amounts as Bank may from time to time establish and revise in its reasonable business judgment, reducing the amount of Advances and other financial accommodations which would otherwise be available to Borrower (a) to reflect events, conditions, contingencies or risks which, as determined by Bank in its reasonable business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets or business of Borrower or any Guarantor, or (iii) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Bank's reasonable belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Bank is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Bank determines constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default; provided, that Bank shall use commercially reasonable efforts to notify Borrower at or before the time any such Reserve is to be established or increased.

 

  34  

 

  

Responsible Officer ” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.

 

Restricted License ” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with Bank’s right to sell any Collateral.

 

Revolving Line ” is an aggregate principal amount equal to Five Million Dollars ($5,000,000.00).

 

Revolving Line Maturity Date ” is two (2) years from the Effective Date.

 

SEC ” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

 

Securities Account ” is any “ securities account ” as defined in the Code with such additions to such term as may hereafter be made.

 

Specified Affiliate ” is any Person (a) more than ten percent (10.0%) of whose aggregate issued and outstanding equity or ownership securities or interests, voting, non-voting or both, are owned or held directly or indirectly, beneficially or of record, by Borrower, and/or (ii) whose equity or ownership securities or interests representing more than ten percent (10.0%) of such Person’s total outstanding combined voting power are owned or held directly or indirectly, beneficially or of record, by Borrower.

 

Subordinated Debt ” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

 

Subsidiary ” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or Guarantor.

 

Term Loan Advance ” is defined in Section 2.3 of this Agreement.

 

Term Loan Maturity Date ” is the date that is thirty-six (36) months after the Effective Date.

 

Total Liabilities ” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness.

 

Trademarks ” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

 

Transfer ” is defined in Section 7.1.

 

Unused Revolving Line Facility Fee ” is defined in Section 2.6(d).

 

  35  

 

  

[Signature page follows.]

 

  36  

 

 

IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the Effective Date.

 

  BORROWER:
   
  DATAWATCH CORPORATION
     
  By    /s/ James  Eliason
     
  Name: James Eliason
     
  Title: Chief Financing Officer
     
  BANK:
   
  SILICON VALLEY BANK
     
  By /s/ Kate Leland
     
  Name: Kate Leland
     
  Title: Managing Director

 

Signature Page to Loan and Security Agreement

 

     

 

 

EXHIBIT A - COLLATERAL DESCRIPTION

 

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

 

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, certificates of deposit, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

 

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

 

Notwithstanding the foregoing, the Collateral does not include (a) any rights held under a license or contract that are not assignable by their terms without the consent of the licensor or contracting Person (that is not a Borrower) thereof (but only to the extent such restriction on assignment is enforceable under applicable law), (b) any interest of Borrower as a lessee or sublessee under a real property lease or an Equipment lease if Borrower is prohibited by the terms of such lease from granting a security interest in such lease or under which such an assignment or Lien would cause a default to occur under such lease (but only to the extent that such prohibition is enforceable under all applicable laws including, without limitation, the Code); provided, however, that upon termination of such prohibition, such interest shall immediately become Collateral without any action by Borrower or Bank, and (c) any Intellectual Property; provided, however, the Collateral shall include all Accounts and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.

 

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.

 

 

     

 

 

Exhibit 10.1

 

EXHIBIT B

COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK Date:  
FROM: DATAWATCH CORPORATION    

 

The undersigned authorized officer of DATAWATCH CORPORATION (“ Borrower ”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “ Agreement ”), (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries, if any, relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except for year-end adjustments or as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenants   Required   Complies
         
Monthly Financial Statements with Compliance Certificate   Monthly within 30 days   Yes   No
10-Q, 10-K and 8-K   Within 5 days after filing with SEC   Yes   No
A/R & A/P Agings   Monthly within 30 days   Yes   No
Deferred Revenue Reports   Monthly within 30 days   Yes   No
Annual financial statements (CPA Audited)   Earlier to occur of (i) FYE within 90 days and (ii) within 5 days of filing with SEC   Yes   No
Borrowing Base Reports   (i) with each request for an Advance and (ii) monthly within 30 days   Yes   No
Board approved projections   Within 30 days of the earlier of (i) FYE or (ii) Board approval, and as amended/updated   Yes   No

 

Financial Covenants   Required   Actual   Complies
             
Maintain as indicated:            
Adjusted Quick Ratio (tested monthly)   > ____* : 1.0   ______ : 1.0   Yes   No
Adjusted EBITDA (trailing three (3) month, tested quarterly)   > $______**   $_________   Yes   No

 

* As set forth in Section 6.9(a).

** As set forth in Section 6.9(b).

 

     

 

  

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

 

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

   

 

 

 

 

DATAWATCH CORPORATION
   

 

By:  

Name:  

Title:  
BANK USE ONLY
 
Received by:  
  authorized signer

Date:  

 

Verified:  
  authorized signer

Date:  

 

   
Compliance Status:             Yes      No

 

 

     

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

 

Dated:   ____________________

 

I. Adjusted Quick Ratio (at all times, tested monthly) (Section 6.9(a))

 

Required : Adjusted Quick Ratio of at least (i) 1.25 to 1.0 for the month ending December 31, 2017, (ii) 1.10 to 1.0 for the months ending January 31, 2018 and February 28, 2018, (iii) 1.25 to 1.0 for the month ending March 31, 2018, (iv) 1.10 to 1.0 for the months ending April 30, 2018 and May 31, 2018 and (v) 1.25 to 1.0 for the month ending June 30, 2018 and for each month thereafter.

 

Actual : ____:1.0

 

A. Aggregate value of Borrower’s consolidated unrestricted and unencumbered cash and Cash Equivalents   $    
           
B. Aggregate value of Borrower’s consolidated net billed accounts receivable, determined according to GAAP   $    
           
C. Quick Assets (the sum of lines A and B)   $    
           
D. All obligations and liabilities of Borrower to Bank   $    
           
E. Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s and its Subsidiaries’’ balance sheet, including all Indebtedness, not otherwise reflected in line C above, that mature within one (1) year   $    
           
F. Current Liabilities (the sum of lines D and E)   $    
           
G. Current portion of Deferred Revenue   $    
           
H. Line F minus G   $    
           
I. Adjusted Quick Ratio (line C divided by line H)        

 

Is line I equal to or greater than _____*:1.00?

 

* As set forth above

 

              No, not in compliance                                        Yes, in compliance

 

II. Adjusted EBITDA (trailing three (3) month, tested quarterly) (Section 6.9(b))

 

     

 

  

Required : See chart below

 

Three (3) Month Period Ending   EBITDA  
March 31, 2018   $ (3,000,000.00 )
June 30, 2018   $ (1,000,000.00 )
September 30, 2018   $ (250,000.00 )
December 31, 2018   $ 1.00  
March 31, 2019   $ 250,000.00  
June 30, 2019   $ 500,000.00  
September 30, 2019   $ 750,000.00  
December 31, 2019 and each calendar quarter thereafter   $ 1,000,000.00  

 

Actual :          $_________________

 

A. Net Income   $    
             
B. To the extent included in the determination of Net Income        
             
  1. Interest Expense   $    
             
  2. Income tax expense   $    
             
  3. Depreciation expense   $    
             
  4. Amortization expense   $    
             
  5. Non-cash Intellectual Property amortization (to the extent not included in B.4)   $    
             
  6. Any cash received from future billing obligations which is not otherwise recognized as revenue acquired in connection with the Angoss Acquisition   $    
             
  7. Non-cash stock based compensation   $    
             
  8. Any increase in Deferred Revenue from the immediately preceding three (3) month period   $    
             
  9. The sum of lines 1 through 8   $    
             
C. To the extent included in the calculation of Net Income        
             
  1. Any decrease in Deferred Revenue from the immediately preceding three (3) month period   $    
             
  2. Unfinanced Capital Expenditures   $    
             
  3. Capitalized software development costs   $    
             
  4. The sum of lines 1 through 3   $    
             
D. Adjusted EBITDA (line A plus line B.9 minus line C.4)   $    

 

     

 

  

Is line D equal to at least the amount set forth above?

 

              No, not in compliance                                        Yes, in compliance

 

     

 

  

EXHIBIT C

 

LOAN PAYMENT/ADVANCE REQUEST FORM

 

Deadline for same day processing is Noon Eastern Time

 

Fax To:   Date: _____________________

 

  Loan Payment :
   
 

DATAWATCH CORPORATION

   

  From Account #     To Account #    
      (Deposit Account #)     (Loan Account #)  

  Principal $     and/or Interest $    
             

  Authorized Signature:     Phone Number:    

  Print Name/Title:          
             

 

  Loan Advance :  
     
  Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.  
     

  From Account #     To Account #    
      (Loan Account #)     (Deposit Account #)  
             

  Amount of Term Loan Advance $      

     
  All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:  
     

  Authorized Signature:     Phone Number:    

  Print Name/Title:          
             

 

 

Outgoing Wire Request:

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, Eastern Time

 
     

  Beneficiary Name:     Amount of Wire: $    
  Beneficiary Bank:     Account Number:    

  City and State:      
         

  Beneficiary Bank Transit (ABA) #:     Beneficiary Bank Code (Swift, Sort, Chip, etc.):    
        (For International Wire Only)  
           

  Intermediary Bank:     Transit (ABA) #:    

  For Further Credit to:    
       

  Special Instruction:    

     
 

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

 

 

 

     

 

  

             
  Authorized Signature:     2 nd Signature (if required):    

  Print Name/Title:     Print Name/Title:    

  Telephone #:     Telephone #:    
             

 

     

 

Exhibit 99.1

 

 

 

 

Datawatch Acquires Data Science Platform Leader Angoss Software

Transaction Broadens Monarch’s Data Preparation Platform Value with Predictive Analytics

 

Bedford, Mass.—January 30, 2018— Datawatch Corporation (NASDAQ-CM: DWCH), data intelligence provider with market leading enterprise data preparation, predictive analytics, and visualization solutions, today announced that it has acquired Angoss Software Corporation, a privately-held data science platform provider based in Toronto, Canada. The acquisition will augment Datawatch’s Monarch data intelligence offering with expanded capabilities that enable data scientists to perform predictive and prescriptive analytics in a wide variety of enterprise applications. The transaction was completed today for US$24.5 million in an all-cash transaction, which was financed through a combination of Datawatch’s cash on hand and funding from a new credit facility with Silicon Valley Bank.

 

Angoss delivers powerful predictive and prescriptive analytics that help businesses discover valuable insights and intelligence in their data, and the company was recognized as one of the leaders in the Forrester Wave: Predictive Analytics and Machine Learning Solutions, Q1 2017 . Angoss data science solutions are used by more than 300 organizations in 30 countries, including many global firms such as Barclays, Unilever, Scotiabank, TD Bank, Bayer, Wells Fargo, Bank of America and Air Canada. Angoss provides rigorous modeling and validation tools for machine learning in high-value applications for customer segmentation, customer churn, credit risk scoring, fraud detection, next best action, collections and recovery, and many other mission-critical solutions.

 

“This is a transformative acquisition for Datawatch that offers a very natural complement to our core Monarch technology platform, significantly expands our addressable market and thus strengthens our competitive position,” said Michael A. Morrison, president and chief executive officer. “Our legacy in data preparation serves as the ideal foundation to extend into all levels of analytics, including predictive and prescriptive analytics. With the Angoss data science platform, we are uniting data preparation, machine learning and predictive analytics to provide an end-to-end data intelligence solution for the enterprise. We welcome the Angoss team to Datawatch, and we know that everyone is excited to work together to make advanced analytics even more accessible to users of all skill levels.”

 

Value-Enhancing Transaction

 

Based upon the trailing twelve-month results through December 31, 2017, (excluding purchase price accounting adjustments), the combined entity has (in U.S. dollars):

 

· Pro forma revenue of $48.2 million
· Pro forma bookings of $51.0 million
· Pro forma non-GAAP net income of $2.3 million

  

 

 

 

Transaction Highlights

 

· Enhances Datawatch’s financial profile. More than 80% of Angoss revenue is recurring, with industry-leading retention rates, which aids predictability. The transaction is expected to be accretive to Datawatch in fiscal 2019 on a non-GAAP earnings per share basis, although dilutive in fiscal 2018 due to certain purchase accounting adjustments related to deferred revenue.
· Expands Datawatch’s addressable market. Gartner projects that the data science platform market, which is nearly three times as large as the self-service data preparation market, will grow at a CAGR of 11% through 2021.
· Extends the Monarch platform. Angoss’ data science platform is a natural extension of the Monarch data preparation platform, and allows Datawatch to unify the analytics experience for business analysts through to data scientists.
· Strengthens the company’s presence in financial services. A significant number of Angoss’ customers are in the financial services industry, which also represents more than 30% of Datawatch’s business today. Many of Angoss’ financial services customers are existing Datawatch customers, which presents significant cross-sell and upsell opportunities.

 

For more information, a presentation outlining the transaction and the opportunities it affords the combined entity is posted on Datawatch’s investor relations website (www.datawatch.com, follow links to investor relations and events and presentations.)

 

About Datawatch Corporation

Datawatch Corporation (NASDAQ-CM: DWCH) is the data intelligence provider with market leading enterprise data preparation, predictive analytics and visualization solutions that fuel business analytics. Only Datawatch can confidently position individuals and organizations to master all data – no matter the origin, format or narrative – resulting in faster time to insight. Datawatch solutions are architected to drive the use of more data, foster more trust and incorporate more minds into business analytics. Thousands of organizations of all sizes in more than 100 countries worldwide use Datawatch products, including 93 of the Fortune 100. The company is headquartered in Bedford, Massachusetts, with offices in New York, London, Toronto, Stockholm, Singapore and Manila. To learn more about Datawatch please visit: www.datawatch.com.

 

 

 

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Any statements contained in this press release that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any such statements, including but not limited to those relating to results of operations, contained herein are based on current expectations, but are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. The factors that could cause actual future results to differ materially from current expectations include the following: risks associated with fluctuations in quarterly operating results due, among other factors, to the long sales cycle with enterprise customers and the size and timing of large customer orders; risks associated with acquisitions; the risk that our goodwill resulting from acquisitions may become impaired and require a write-down; limitations on the effectiveness of internal controls; rapid technological change; Datawatch’s dependence on the introduction of new products and product enhancements and possible delays in those introductions; competition in the software industry generally, and in the markets for next generation analytics in particular; Datawatch's dependence on its principal products, proprietary software technology and software licensed from third parties; Datawatch’s concentration of customers in the financial sector; risks associated with international sales and operations; risks associated with indirect distribution channels and co-marketing arrangements, many of which were only recently established; the adequacy of Datawatch’s sales returns reserve; risks associated with a subscription sales model; Datawatch’s dependence on its ability to hire and retain skilled personnel; disruption or failure of Datawatch’s technology systems that may result from a natural disaster, cyberattack, security breach or other catastrophic event; risks related to actions by activist stockholders, including the amount of related costs incurred by Datawatch and the disruption caused to Datawatch’s business activities by these actions; and uncertainty and additional costs that may result from evolving regulation of corporate governance and public disclosure. Further information on factors that could cause actual results to differ from those anticipated is detailed in various publicly-available documents, which include, but are not limited to, filings made by Datawatch from time to time with the Securities and Exchange Commission, including but not limited to, those appearing in the Company's Annual Report on Form 10-K for the year ended September 30, 2017 and its subsequently filed Form 10-Q reports. Any forward-looking statements should be considered in light of those factors.

 

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Investor Contact:

Datawatch Investor Relations

investor@datawatch.com

Phone: (978) 441-2200 ext. 8323

 

Media Contact:

Frank Moreno

Vice President Worldwide Marketing, Datawatch Corporation

frank_moreno@datawatch.com

978-275-8225

Twitter: @datawatch

 

© 2018 Datawatch Corporation. Datawatch and the Datawatch logo are trademarks or registered trademarks of Datawatch Corporation in the United States and/or other countries. All other names are trademarks or registered trademarks of their respective companies.

 

 

 

Exhibit 99.2

  

 

1 DATAWATCH ACQUIRES ANGOSS SOFTWARE ® 2018 DATAWATCH CORPORATION │ WWW.DATAWATCH.COM

 

 

2 2 Any statements contained in this presentation and the accompanying oral presentation that do not describe historical facts ma y c onstitute forward - looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any such statements, including but not limited to those relating to results of operations, contained herein are based on current expectations, but are subje ct to a number of risks and uncertainties that may cause actual results to differ materially from expectations. The factors that could cause ac tua l future results to differ materially from current expectations include the following: risks associated with fluctuations in quarterly operati ng results due, among other factors, to the long sales cycle with enterprise customers and the size and timing of large customer orders; risk s a ssociated with acquisitions; the risk that our goodwill resulting from acquisitions may become impaired and require a write - down; limitati ons on the effectiveness of internal controls; rapid technological change; Datawatch’s dependence on the introduction of new products an d p roduct enhancements and possible delays in those introductions; competition in the software industry generally, and in the markets f or next generation analytics in particular; Datawatch's dependence on its principal products, proprietary software technology and sof twa re licensed from third parties; Datawatch’s concentration of customers in the financial sector; risks associated with international sales an d operations; risks associated with indirect distribution channels and co - marketing arrangements, many of which were only recently established ; the adequacy of Datawatch’s sales returns reserve; risks associated with a subscription sales model; Datawatch’s dependence on it s a bility to hire and retain skilled personnel; disruption or failure of Datawatch’s technology systems that may result from a natural dis ast er, cyber - attack, security breach or other catastrophic event; risks related to the actions of activist stockholders, including the amo unt of related costs incurred by Datawatch and the disruption caused to Datawatch’s business activities by these actions; and uncertainty and addi tio nal costs that may result from evolving regulation of corporate governance and public disclosure. Further information on factors that c oul d cause actual results to differ from those anticipated is detailed in various publicly - available documents, which include, but are not limited to, filings made by Datawatch from time to time with the Securities and Exchange Commission, including but not limited to, those appearin g i n the Company's Annual Report on Form 10 - K for the year ended September 30, 2017 and its subsequently filed 10 - Q reports. © 2018 Datawatch Corporation . Datawatch and the Datawatch logo are trademarks or registered trademarks of Datawatch Corporation in the United States and/or other countries . All other names are trademarks or registered trademarks of their respective companies . Safe Harbor Statement

 

 

3 3 Transaction Details The Deal Datawatch acquires Angoss in a stock purchase transaction Purchase Price All cash transaction for $24.5 million Source of Funds $14.5 million cash on hand $10.0 million credit facility through SVB Transaction Closing Simultaneous sign and close Note: All $ figures are USD

 

 

4 4 Who is Angoss Software? Solutions Visual Data Science Platform  Predictive Analytics  Prescriptive Analytics  Machine Learning  Big Data Business Founded in 1984  Traded on TSX from 2008 - 2013  Acquired by Peterson Partners in 2013 Customers More than 300 enterprise customers with a strong presence in financial services, telco and retail Financial Highlights $10.6M FY2017 Revenue  $2.2M FY2017 EBITDA  $3.5M+ Cash Balance at Year End FY2017 Locations Headquarters in Toronto, Canada. Offices in U.K., U.S . and Singapore

 

 

5 5 Transformative Combination Complete Solution Data preparation AND advanced analytics (predictive & prescriptive) Best in Breed Datawatch and Angoss serve marquee global clients like Wells Fargo, Unilever, J.P. Morgan, Bayer, TD Bank Market Total addressable market increases almost 5X

 

 

6 6 Why Angoss? Technology Highly regarded predictive analytics platform deployed at some of the largest global organizations Fit Common focus on key verticals (financial services, retail, public sector)  Analytics/data science domain expertise Existing Partner Datawatch and Angoss working together since 2016 and excited to go to market with new solutions

 

 

7 7 The unified analytics experience provided by Monarch and Angoss supports the requirements of the entire enterprise, from business analysts, to data scientists, to line - of - business heads to IT staff Expanding Market Opportunity Data preparation and data science offers complete solution The addition of Angoss allows Datawatch to provide enterprise - scale, high value solutions for risk analytics, customer analytics, marketing analytics and sales analytics Datawatch participates in two high growth sectors of the analytics market Data preparation and analytics market expected to grow at 19% CAGR to $1.5 billion by 2021* Size of data science platform and prescriptive analytics markets expected to grow to $5.8 billion by 2021* * “ Market Opportunity Map: Analytics and Business Intelligence, Worldwide, June 2017” Gartner Group

 

 

8 8 The Angoss Difference Extends Monarch Platform Data preparation as foundation for all analytics – including predictive and prescriptive analytics Expands Addressable Market Data intelligence leader that addresses data preparation, predictive analytics and visual analytics Well Run Company $10.6 million in revenue in FY2017  80% of revenue recurring  $2.2 million in EBITDA in FY2017

 

 

9 9 Candidates for cross - sell of Monarch for data preparation and/or Panopticon for visual analytics PREDICTIVE ANALYTICS Angoss Candidates for up - sell to Angoss for packaged predictive ‘solutions’ DATA PREPARATION Monarch Candidates for upsell to Angoss predictive models VISUAL ANALYTICS Panopticon Data Intelligence to Fuel the Modern Business OPPORTUNITY

 

 

10 10 Integration and Go - To - Market Technology Monarch integrated with Angoss on Day 1 Enablement Cross - training on predictive analytics and data preparation complete by Day 60 Channels Direct sales organizations operate independently  Partner organizations combined on Day 1 Solutions Packaged predictive and data preparation solutions available for cross - sell and upsell by 2 nd half of 2018

 

 

11 11 Summary Provides immediate cross - sell and upsell opportunities throughout Datawatch and Angoss customer bases Excited team with deep data science domain knowledge Immediate catalyst to accelerate revenue growth Significantly expands market opportunity End - to - end analytic platform from data prep & blending to predictive analytics Data scientists can now buy complete solution from a single vendor