UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
iGAMBIT, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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11-3363609
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(State or other jurisdiction of incorporation or
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(I.R.S. Employer Identification No.)
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organization)
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1600 Calebs Path Extension, Suite 114,
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Hauppauge, New York
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11788
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(Address of principal executive offices)
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(Zip Code)
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With copy to:
Joel D. Mayersohn, Esq.
Clint J. Gage, Esq.
Roetzel & Andress
350 East Las Olas Boulevard, Suite 1150
Fort Lauderdale, Florida 33301
Telephone: (954) 462-4150
Facsimile: (954) 462-4260
Registrants telephone number, including area code: (631) 780-7055
Securities to be registered pursuant to Section 12(b) of the Act: None
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Securities to be registered pursuant to Section 12(g) of the Act:
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Common Stock
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(Title of Class)
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Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting
company)
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Smaller reporting company
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ITEM 1. BUSINESS
CAUTION REGARDING FORWARD LOOKING STATEMENTS
This registration statement contains forward-looking statements. In some cases, you can
identify these statements by forward-looking words such as may, might, will, should,
expects, plans, anticipates, believes, estimates, predicts, intends, potential and
similar expressions. All of the forward-looking statements contained in this registration
statement are based on estimates and assumptions made by our management. These estimates and
assumptions reflect our best judgment based on currently known market and other factors. Although
we believe such estimates and assumptions are reasonable, they are inherently uncertain and involve
risks and uncertainties. In addition, managements assumptions about future events may prove to be
inaccurate. We caution you that the forward-looking statements contained in this registration
statement are not guarantees of future performance and we cannot assure you that such statements
will be realized. In all likelihood, actual results will differ from those contemplated by such
forward-looking statements as a result of a variety of factors, including those factors discussed
in Item 1A. Risk Factors. We will update these forward-looking statements only as required by
law. We do not undertake any other responsibility to update any forward-looking statements.
HISTORY
We were incorporated in the State of Delaware under the name BigVault.com Inc. on April 13,
2000. On April 18, 2000, we merged with BigVault.com, Inc., a New York corporation with which we
were affiliated. We survived the merger, and on December 21, 2000 changed our name to bigVAULT
Storage Technologies, Inc. At that time we were in the business of providing remote,
internet-based storage vaulting services and related ancillary services to end users and resellers
(the Vault Business).
On February 28, 2006 we sold all of our assets to Digi-Data Corporation (DDC) pursuant to
the terms of an Asset Purchase Agreement dated December 21, 2005 (the APA), a copy of which is
filed herewith as an exhibit. As consideration for our transfer of assets under the APA, DDC paid
certain of our liabilities and agreed to make certain quarterly and annual revenue sharing payments
to us. Specifically, DDC agreed to make quarterly payments to us, for a period of 5 years, in the
amount equal to 10% of the Vault Net Revenues received by DDC through its operation of the Vault
Business (the Quarterly Revenue Share Payments). Vault Net Revenues is defined in the APA as
the gross revenue of DDC actually received by DDC that is solely and directly attributable to the
Vault Business, to the extent that such revenue is derived from the provision of vault services
and/or vault appliances which use the Big Vault core technology, less the sum of (i) any discount
given by DDC in compensation for early payment, (ii) returns, allowances, quantity discounts and
credits, (iii) any accounting reserve amount, as determined in accordance with GAAP, and (iv)
shipping and mailing costs, duties, taxes and insurance. In addition, DDC agreed to make an annual
payment to us after the 2
nd
, 3
rd
, 4
th
, and 5
th
anniversaries of the closing of the transaction, in an amount equal to 5% of any increase in the
annual Vault Net Revenue over the immediately prior years Vault Net Revenue (the Annual Increase
Payments, and together with the Quarterly Revenue Share Payments the Revenue Share Payments).
Mr. Salerno and Ms. Luqman accepted employment with DDC in senior management positions post
closing, and continued to work for DDC until February 2009. As of March 1, 2009 Mr. Salerno and Ms.
Luqman returned to their full time management roles with the Company.
On April 5, 2006, we changed our name to iGambit, Inc.
On October 1, 2009, we acquired the assets of Jekyll Island Ventures, Inc., a New York
corporation doing business as Gotham Photo Company (Jekyll) through our wholly owned subsidiary
Gotham Innovation Lab, Inc., a New York corporation (Gotham). Pursuant to the terms of the Asset
Purchase Agreement and Plan of Reorganization (APAPR), we (i) issued 500,000 shares of our common
stock to Jekyll at closing; (ii) assumed certain Jekyll accounts payable at closing; and (iii)
issued Jekyll warrants to purchase 1,500,000 shares of our common stock, at $0.01 per share,
subject to a 3 year vesting schedule and the attainment by Gotham of certain revenue targets during
said 3 year period.
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On December 2, 2009, we amended our Certificate of Incorporation increasing our authorized
shares of common stock to 75 million shares.
References to iGambit, the Company, we, us, our and similar words refer to iGambit,
Inc.
OUR COMPANY
Introduction
We are a company focused on the technology markets. Presently we have one operating
subsidiary in the business of providing media technology services to the real estate industry.
Our primary focus is the acquisition of technology companies. We believe that the background
of our management and of our Board of Directors in the technology markets is a valuable resource
that makes us a desirable business partner to the companies that we are seeking to acquire. When
we acquire a company, we work to assume an active role in the development and growth of the
company, providing both strategic guidance and operational support. We provide strategic guidance
to our partner companies relating to, among other things, market positioning, business model and
product development, strategic capital expenditures, mergers and acquisitions and exit
opportunities. Additionally, we provide operational support to help our partner companies manage
day-to-day business and operational issues and implement best practices in the areas of finance,
sales and marketing, business development, human resources and legal services. Once a company joins
our partner company network, our collective expertise is leveraged to help position that company to
produce high-margin, recurring and predictable earnings and generate long-term value for our
stockholders.
Sources of target businesses
We anticipate that target business candidates will be brought to our attention from various
sources, including our management team, investment bankers, venture capital funds, private equity
funds, leveraged buyout funds, management buyout funds, consulting firms and other members of the
financial community who will become aware that we are seeking a business combination partner via
public relations and marketing efforts, direct contact by management or other similar efforts, who
may present solicited or unsolicited proposals. Any finder or broker would only be paid a fee upon
the completion of a business combination. While we do not presently anticipate engaging the
services of professional firms that specialize in acquisitions on any formal basis, we may decide
to engage such firms in the future or we may be approached on an unsolicited basis. Our officers
and directors, as well as their affiliates, may also bring to our attention target business
candidates that they become aware of through their business contacts. While our officers and
directors make no commitment as to the amount of time they will spend trying to identify or
investigate potential target businesses, they believe that the various relationships they have
developed over their careers together with their direct inquiry, will generate a number of
potential target businesses that will warrant further investigation. In no event will we pay any of
our existing officers, directors, special advisors or stockholders or any entity with which they
are affiliated any finders fee or other compensation for services rendered to us prior to or in
connection with the completion of a business combination. In addition, none of our officers,
directors, special advisors or existing stockholders will receive any finders fee, consulting fees
or any similar fees from any person or entity in connection with any business combination involving
us other than any compensation or fees that may be received for any services provided following
such business combination.
Selection of a target business and structuring of a business combination
Our management has virtually unrestricted flexibility in identifying and selecting a
prospective target business. We expect that our management will diligently review all of the
proposals we receive with respect to a prospective target business. In evaluating a prospective
target business, our management will conduct the necessary business, legal and accounting due
diligence on such target business and will consider, among other factors, the following:
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financial condition and results of operations;
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earnings and growth potential;
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experience and skill of management and availability of additional personnel;
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capital requirements;
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competitive position;
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barriers to entry into the industry;
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breadth of services offered;
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degree of current or potential market acceptance of the technology;
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regulatory environment; and
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costs associated with effecting the business combination.
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These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a
particular business combination will be based, to the extent relevant, on the above factors as well
as other considerations deemed relevant by our management in effecting a business combination
consistent with our business objective. In evaluating a prospective target business, we will
conduct an extensive due diligence review which will encompass, among other things, meetings with
incumbent management, where applicable, and inspection of facilities, as well as review of
financial and other information which will be made available to us.
Evaluation of the target businesss management
We would condition any acquisition on the commitment of management of the target business to
remain in place post closing, Following a business combination, we may seek to recruit additional
managers to supplement the incumbent management of the target business. We cannot assure you that
we will have the ability to recruit additional managers, or that any such additional managers will
have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Although we intend to closely scrutinize the management of a prospective target business when
evaluating the desirability of effecting a business combination, we cannot assure you that our
assessment of the target businesss management will prove to be correct.
Competition
In identifying, evaluating and selecting a target business, we may encounter intense
competition from other entities having a business objective similar to ours. Many of these entities
are well established and have extensive experience identifying and effecting business combinations
directly or through affiliates. Many of these competitors possess greater technical, human and
other resources than us and our financial resources will be relatively limited when contrasted with
those of many of these competitors, which may limit our ability to compete in acquiring certain
target businesses. This inherent competitive limitation gives others an advantage in pursuing the
acquisition of a target business.
Our Partner Company Gotham Photo Company
Products and Services
Gothams business is directed at providing media technology services to the real estate
community. The range of media services includes the exclusive Gotham Expo Full Screen Experience.
Gotham also provides website development services, sales office technology, and data interchange
services for many of the real estate firms in New York City.
When it comes to selling real estate every broker or seller listing has to have pictures.
Utilizing the latest technology Gothams Expo product provides a full screen listing experience. It
allows brokers and sellers to present their listing in the largest format possible while giving the
viewer control of the show. Expo integrates images, photos, floor plans, agent and key listing
details in an engaging format that immerses the viewer. Currently, Gotham is capable of
integrating up to 16 images into a full screen for any listing.
Expo is available for all NYC realtors and will be made available nationwide within the coming
months. All systems are built on accessible web platforms that integrate quickly and seamlessly
into the agents workflow.
Competitive Comparison
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Gotham competes with others in the industry by focusing on user interaction, technology and
delivery. Gotham maintains strict standards of photography that alone set us aside from our
competition. In addition to superior media, Gothams technology tools further set us apart.
Gotham constantly leverages Team5 technology to
come up with the best solutions for the real estate industry. Team5, Gothams development
arm, works across numerous different industries, allowing the Gotham / Team5 team to constantly see
best in show technologies and adapt them to the real estate industry.
Future Products and Services
Future offerings will include enhanced products that focus on social media interaction, mobile
applications and tools for realtors, as well as multi touch augmented reality technologies for
presentations, etc. Gotham will continue to expand its media offerings, integrating with and
adopting technologies as they become available.
Market Segmentation
According to the National Association of Realtors, in 2008 there were approximately 2.3
million real estate licenses, 1.2 million realtors and that in 2007 5.4 million homes were sold.
Also, according to Borrell Associates, Inc the total marketing spent to market those homes was
$11.5 billion. Another survey by VHT, Inc. indicated that the average marketing specific costs
were $850 per home which would suggest a potential market size for the marketing component is
approximately $5 billion per year at the low end. The marketing spend has migrated in recent years
from traditional newspaper advertising to direct mail, and now variable data direct mail along with
integrated online marketing, with a huge increase in email blast and other online tools. It is
these other online tools that Gotham brings to the realtor.
Current market trends and real estate industry leaders substantiate Gothams business model.
The residential real estate industry in the United States is moving toward expanding the use of
technology in the home and condo buying process. Its the topic du jour of the real estate
conferences. Plus, it is prominently and frequently discussed in all of the industrys trade
publications. Commercial real estate is also looking for better and efficient ways to reach out to
and serve their customers.
This real estate market is highly fragmented. According to REAL Trends, the 10 largest
brokerage firms accounted for less than 9% of all brokered residential real estate transaction
volume in 2007, and the single largest firm accounted for less than 5% of total transaction volume.
Many brokerage firms are affiliated with national franchise brands, such as Century 21, Coldwell
Banker, Prudential and RE/MAX. The franchise brands typically do not directly own and operate
brokerage firms, but rather license their brand names and trademarks and provide other marketing
support to franchisee brokerage firms. These brokerage firms typically engage agents to work for
them as independent contractors and as a result franchisors and franchisees have limited direct
influence over the client relationship or the quality of client service.
At the same time consumers are increasingly using the Internet as a key source of information
in buying and selling a home. Industry reports state that their use of the Internet to search for
homes has increased from 71% in 2003 to 87% in 2008. The Internet provides a highly effective means
for consumers to research information about homes in an industry that is data intensive yet
historically has suffered from a lack of broad access to comprehensive and timely property listings
information for consumers. The interactivity of the Internet also allows consumers greater ability
to conduct targeted searches and research relevant data about desired homes or areas. The ability
to provide multiple images and rich media makes the Internet a highly effective means for brokerage
firms to market and consumers to research homes.
Strategy and Implementation Summary
Gothams objective is to be a market leader in offering EXPO, Virtual Tours, and e-Brochures,
type services to the real estate industry. Gotham is currently providing services to a number
realtors and brokers in the New York Metropolitan area including, but not limited to, Prudential
Douglas Elliman, Cocoran and others. We plan to increase our marketing and client base in the NY
area and expand to other major cities and markets such as
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Boston, Philadelphia, Washington DC,
Chicago, etc. Within 3 years we expect to be offering our services to over 250 US metropolitan
statistical areas.
Employees
We presently have 9 total employees, all of which are full-time.
OUR CORPORATE INFORMATION
Our principal offices are located at 1600 Calebs Path Extension, Suite 114, Hauppauge, New
York, 11788. Our telephone number is (631) 780-7055 and our fax number is (631) 656-1055. We
currently operate two corporate websites that can be found at www.igambit.com and
www.gothamphotocompany.com (the information on the foregoing websites does not form a part of this
prospectus).
ITEM 1A. RISK FACTORS
If any of the following risks actually occur, our results of operations, cash flows and the
value of our shares could be negatively impacted. Although we believe that we have identified and
discussed below the key risk factors affecting our business, there may be additional risks and
uncertainties that are not presently known that may adversely affect our performance or financial
condition.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS
We have a limited operating history on which you can evaluate our ability to achieve our business
objective.
Prior to our acquisition of Gotham we had limited operations since 2006.
We are dependent upon our Management for the operating of the Company
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We are dependent upon the services of the Officers and Directors to determine and implement
our overall focus and strategy. There can be no assurance that managements experience will be
sufficient to successfully achieve our business objectives. All decisions regarding the management
of our affairs will be made exclusively by our Officers and Directors. In the event these persons
are ineffective, our business and results of operation would likely be adversely affected.
We may not be able to compete successfully against current and future competitors
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A large number of companies currently compete with us in the marketplace. Many competitors
have far greater capital, marketing and other resources than we do. Furthermore, we cannot assure
you that these or other companies will not develop new or enhanced products that are more effective
than those of Gotham or partner companies that we acquire in the future.
Numerous external forces, including the recent financial crisis, could negatively affect our
businesses, results of operations and financial condition.
Numerous external forces, including the state of global financial markets and general economic
conditions, lack of consumer confidence, lack of availability of credit, interest rate and currency
rate fluctuations and national and international political circumstances (including wars and
terrorist acts) could negatively affect our business, results of operations and financial
condition. The recent global financial crisis affecting the banking system, financial markets and
financial institutions has resulted in a tightening in the credit markets, a low level of liquidity
in many financial markets and extreme volatility in credit and equity markets. The length of time
or severity with which these conditions may persist is unknown. As a consequence, our operating
results for a particular period are difficult to predict and, therefore, prior results are not
necessarily indicative of expected results in future periods. In response to the financial crisis,
many customers and potential customers may forgo, delay or reduce technology and other purchases.
In connection with such crisis, we may experience reductions in sales of our products and services,
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extended sales cycles, difficulties in collecting or the inability to collect accounts receivable,
slower adoption of new technologies, increased price competition and difficulties in obtaining or
the inability to obtain financing.
If we are not able to deploy capital effectively and on acceptable terms, we may not be able to
execute our business strategy.
Our strategy includes effectively deploying capital by acquiring new companies. We may not be
able to identify attractive acquisition candidates that fit our strategy. Even if we are able to
identify such candidates, we may not be able to acquire such companies due to an inability to reach
mutually acceptable financial or other terms with such companies or due to competition from other
potential acquirers that may have greater resources, brand name recognition, industry contacts or
flexibility of structure than us. The recent turmoil in the global economy has caused significant
declines and fluctuations in the valuations of publicly-traded companies and privately-held
companies. Uncertainty regarding the extent to which valuations of companies that fit our
acquisition criteria will continue to fluctuate may affect our ability to accurately value
potential acquisition candidates. Additionally, the recent economic crisis may make it more
difficult for us to obtain capital needed to deploy to new and existing partner companies. If we
are unable to effectively deploy capital to our companies on acceptable terms, we may not be able
to execute on our strategy, and our business may be adversely impacted.
Our operations and growth and that of our partner companies could be impaired by limitations on our
and/or their ability to raise capital or borrow money on favorable terms.
We may need to raise additional capital or borrow money in order to sustain operations or to
grow. If we are unable to raise capital or obtain credit on favorable terms, our ability to operate
and grow may be impaired. This may require us to take other actions, such as borrowing money on
terms that may be unfavorable, or divesting of assets prematurely to raise capital. If we need
capital and are unable to raise it, then we may need to limit or cease operations.
The loss of our or our partner companies executive officers or other key personnel or our partner
companies inability to attract additional key personnel could disrupt our business and operations.
If one or more of our executive officers or key personnel, including highly trained
information technology personnel, or our partner companies executive officers or key personnel,
including highly trained information technology personnel, were unable or unwilling to continue in
their present positions, or if we or our partner companies were unable to hire qualified personnel,
our business and operations could be disrupted and our operating results and financial condition
could be seriously harmed.
We may be subject to litigation proceedings or government regulation that could harm our business.
We may be subject to legal claims involving stockholder, consumer, competition and other
matters. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An
unfavorable ruling could include monetary damages or, in cases for which injunctive relief is
sought, an injunction prohibiting us from performing one or more critical activities. If we were to
receive an unfavorable ruling in a litigation matter, our business, financial condition and results
of operations could be materially harmed. Even if legal claims brought against us are without
merit, defending lawsuits may take significant time, be expensive and divert the attention of our
management from other business concerns.
Our officers and directors will have significant voting power and may take actions that may not be
in the best interests of other shareholders.
Our officers and directors, principal stockholders and their affiliates currently control in
excess of a majority of our voting securities. If these stockholders act together, they will be
able to exert significant control over our management and affairs requiring stockholder approval,
including approval of significant corporate transactions. This concentration of ownership may have
the effect of delaying or preventing a change in control and might adversely affect the market
price of the common stock. This concentration of ownership may not be in the best interests of all
of our stockholders.
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We do not anticipate paying dividends in the foreseeable future, and the lack of dividends may have
a negative effect on the stock price.
We currently intend to retain future earnings to support operations and to finance expansion
and, therefore, do not anticipate paying any cash dividends on our capital stock in the foreseeable
future.
We did not obtain an opinion from an unaffiliated third party as to the fair market value of Gotham
or the fairness of the transaction to our stockholders and, as such, our stockholders are relying
solely on the judgment of our board of directors.
We did not obtain an opinion from an unaffiliated third party that the price we paid to
acquire Gotham was fair to our stockholders. Accordingly, our stockholders relied solely on the
judgment of our board of directors. None of our directors is a business valuation expert, an
independent public accountant or an investment banker.
There is not now, and there may not ever be an active market for shares of our common stock
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There is no public market for shares of our common stock. This makes it difficult for our
stockholders to sell their shares as and when they choose. Should a trading market develop, it is
likely to result in only small trading volumes for quite some time. Small trading volumes are
generally understood to depress market prices. As a result, you may not always be able to resell
shares of our common stock publicly at the time and prices that you feel are fair or appropriate.
We intend to have our common stock quoted on the OTC Bulletin Board, which will limit the liquidity
and price of our securities more than if our securities were quoted or listed on a National
Exchange.
Our securities will be traded in the over-the-counter market. It is anticipated that they will
be quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity
securities. Quotation of our securities on the OTC Bulletin Board will limit the liquidity and
price of our securities more than if our securities were quoted or listed on a national exchange.
Our common stock is subject to the penny stock rules of the SEC, which may make it more difficult
for stockholders to sell the common stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a penny stock, for the
purposes relevant to us, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a persons account for transactions in
penny stocks; and
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the broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.
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In order to approve a persons account for transactions in penny stocks, the broker or dealer
must:
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obtain financial information and investment experience objectives of the
person; and
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make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions in penny
stocks.
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock market, which, in
highlight form:
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sets forth the basis on which the broker or dealer made the suitability
determination; and
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that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Disclosure also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the broker-dealer and
the registered representative,
current quotations for the securities and the rights and remedies available to an investor in
cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and information on the limited
market in penny stocks.
The regulations applicable to penny stocks may severely affect the market liquidity for the
common stock and could limit an investors ability to sell the common stock in the secondary
market.
As an issuer of penny stock, the protection provided by the federal securities laws relating to
forward looking statements does not apply to us.
Although federal securities laws provide a safe harbor for forward-looking statements made by
a public company that files reports under the federal securities laws, this safe harbor is not
available to issuers of penny stocks. As a result, we do not have the benefit of this safe harbor
protection in the event of any legal action based upon a claim that the material provided by us
contained a material misstatement of fact or was misleading in any material respect because of our
failure to include any statements necessary to make the statements not misleading. Such an action
could hurt our financial condition.
The market price of our common stock is likely to be highly volatile and subject to wide
fluctuations.
Dramatic fluctuations in the price of our common stock may make it difficult to sell our
common stock. The market price of our common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to a number of factors, some of which are beyond our
control. Such factors include:
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dilution caused by our issuance of additional shares of common stock and
other forms of equity securities, in connection with future capital financings to fund
our operations and growth, to attract and retain valuable personnel and in connection
with future strategic partnerships with other companies;
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variations in our quarterly operating results;
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announcements that our revenue or income are below or that costs or losses
are greater than analysts expectations;
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the general economic slowdown;
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sales of large blocks of our common stock by stockholders;
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announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital commitments; and
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fluctuations in stock market prices and volumes;
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These and other factors, and the impact of these risks, singly or in the aggregate, may result
in material adverse changes to the market price of our common stock and/or our results of
operations and financial condition.
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We are subject to Sarbanes-Oxley and the reporting requirements of federal securities laws,
which can be expensive
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As a public reporting company, we are subject to Sarbanes-Oxley and, accordingly, are
subject to the information and reporting requirements of the Securities Exchange Act of 1934 and
other federal securities laws. The costs of compliance with Sarbanes-Oxley, of preparing and filing
annual and quarterly reports, proxy statements and other information with the SEC, furnishing
audited reports to our Stockholders, and other legal, audit and internal resource costs attendant
with being a public reporting company will cause our expenses to be higher than if we were
privately held.
Our internal control over financial reporting may have weaknesses or inadequacies that may be
material.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to perform an evaluation of our
internal control over financial reporting and our auditor to attest to such evaluation on an annual
basis. Ongoing compliance with these requirements is expected to be expensive and time-consuming
and may negatively impact our results of operations. We cannot make any assurances that material
weaknesses in our internal control over financial reporting will not be identified in the future.
If any material weaknesses are identified in the future, we may be required to make material
changes in our internal control over financial reporting, which could negatively impact our results
of operations. In addition, upon such occurrence, our management may not be able to conclude that
our internal control over financial reporting is effective or our independent registered public
accounting firm may not be able to attest that our internal control over financial reporting was
effective. If we cannot conclude that our internal control over financial reporting is effective or
if our independent registered public accounting firm is not able to attest that our internal
control over financial reporting is effective, we may be subject to regulatory scrutiny, and a loss
of public confidence in our internal control over financial reporting, which may cause the value of
our common stock to decrease.
Impact of corporate governance laws
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Changing laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating
uncertainty for public companies. We are required to invest significant management time and
financial resources to comply with both existing and evolving standards for public companies, which
will lead to increased general and administrative expenses and a diversion of management time and
attention from revenue generating activities to compliance activities.
ITEM 2. FINANCIAL INFORMATION
CRITICAL ACCOUNTING ESTIMATES
Our managements discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of financial
statements may require us to make estimates and assumptions that may affect the reported amounts of
assets and liabilities and the related disclosures at the date of the financial statements. We do
not currently have any estimates or assumptions where the nature of the estimates or assumptions is
material due to the levels of subjectivity and judgment necessary to account for highly uncertain
matters or the susceptibility of such matters to change or the impact of the estimates and
assumptions on financial condition or operating performance is material, except as described below.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include checking and money
market accounts and any highly liquid debt instruments purchased with a maturity of three months or
less.
Revenue Recognition
9
Contingency payments are recognized quarterly as an adjustment of the sales price of the
business sold from a percentage of Digi-Datas vaulting service revenue and is included in
discontinued operations.
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation for both financial reporting and
income tax purposes is computed using combinations of the straight line and accelerated methods
over the estimated lives of the respective assets. During the year ended December 31, 2008, the
Company purchased computer equipment totaling $1,864. Computer equipment is depreciated over 5
years. Maintenance and repairs are charged to expense when incurred. When property and equipment
are retired or otherwise disposed of, the related cost and accumulated depreciation are removed
from the respective accounts and any gain or loss is credited or charged to income. Depreciation expense of $373 was charged to operations for the year ended December 31, 2008.
Stock-Based Compensation
As of December 31, 2008, the Company has a stock-based employee compensation plan which it
accounts for applying FASB Codification Topic 718, Share-Based Payment. Under these accounting
rules, the Company is required to select a valuation technique or option-pricing model that meets
the criteria as stated in the standard, which includes a binomial model and the Black-Scholes
model. At the present time, the Company applies the Black-Scholes model. The rules also requires
the Company to estimate forfeitures in calculating the expense relating to stock-based compensation
as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they
occur.
Income Tax
Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the statement of operations in the period that includes the enactment
date.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2009 as Compared to Nine Months Ended September 30, 2008
Assets.
At September 30, 2009, we had $1,525,700 in total assets, compared to $1,450,176 at
December 31, 2008. This was primarily due to the increase of contingency payments to $1,236,232
from Digi-Data Corp. at September 30, 2009.
Liabilities.
At September 30, 2009, our Total Liabilities consisted of $2,121 compared to
$496,292 at December 31, 2008. Liabilities consist only of Accounts Payable. Long Term Liabilities
decreased to $0 at September 30, 2009 from $491,538 at December 31, 2008 primarily due to payment
of deferred compensation and prepaid expenses to Digi-Data Corp.
Stockholders Equity (Deficit).
Our Stockholders Equity (Deficit) increased to $1,523,579 at
September 30, 2009 from $953,884 at December 31, 2008. This increase was primarily due to the
receipt of contingency payments from Digi-Data Corp. and an increase in Accumulated Deficit
to $(231,888) at September 30, 2009, from $(794,083) at December 31, 2008.
Revenues and Net Income
.
Our Revenues including other income increased to $1,239,576 for the
nine months ended September 30, 2009 from $526,566 for the nine months ended September 30, 2008;
our Income from Discontinued Operations increased to $1,237,673 for the nine months ended September
30, 2009, compared to $614,253 for the nine months ended September 30, 2008; and our net income
increased to $562,195 for the nine months ended September 30, 2009, compared to $311,228 for the
nine months ended September 30, 2008. These
10
increases were due to the success of the agreement
with Digi-Data Corporation. We continue to receive 10% of Digi-Datas gross Vault sales and 5% of
the year to year increase. This agreement ends on February 28, 2011.
General and Administrative Expenses
. General and Administrative Expenses increased to
$297,292 for the nine months ended September 30, 2009 from $84,349 for the nine months ended
September 30, 2008. General and Administrative Expenses consist of officers salaries of $51,825,
corporate administrative expenses of $67,872, legal and accounting fees of $123,595, and
Consulting Fees of $54,000.
Year Ended December 31, 2008 as Compared to Year Ended December 31, 2007
Assets.
At December 31, 2008, we had $1,450,176 in total assets, compared to $1,110,412 at
December 31, 2007.
Liabilities.
At December 31, 2008, our total liabilities consisted of $496,292 compared to
$708,802 at December 31, 2007. Liabilities consist primarily of liabilities from discontinued
operations.
Stockholders Equity (Deficit).
Our Stockholders Equity (Deficit) increased to $953,884 at
December 31, 2008 from $401,610 at December 31, 2007. This increase was primarily due to the
receipt of contingency payments from Digi-Data Corp. and a decrease in Accumulated Deficit from
$(1,270,376) at December 31, 2007, to $(794,083) at December 31, 2008.
Revenue and Net Incomes
.
We did not have any revenue during the years ended 2008 and 2007,
though we had income from discontinued operations of $553,363 for the year ended December 31, 2008,
compared to $240,145 for the year ended December 31, 2007, and net income of $476,293 for the year
ended December 31, 2008, compared to $164,020 for the year ended December 31, 2007. These
increases were due to the success of the agreement with Digi-Data Corporation. We continue to
receive 10% of Digi-Datas gross Vault sales and 5% of the year to year increase. This agreement
ends on February 28, 2011.
General and Administrative Expenses
. General and Administrative Expenses increased to
$123,689 for the year ended December 31, 2008 from $120,271 for the year ended December 31, 2007.
LIQUIDITY AND CAPITAL RESOURCES
As reflected in the accompanying consolidated financial statements, at September 30, 2009, we
had $772,507 cash on hand and stockholders equity of $1,523,579. While we believe in the
viability of our strategy to improve sales volume and acquire companies, and in our ability to
raise additional funds, there can be no assurances that we will be able to fully effectuate our
business plan.
At September 30, 2009, we had $1,525,700 in total assets, compared to $1,450,176 at December
31, 2008. This increase is primarily due to contingency payments from Digi Data Corp.
Our efforts are directed at growing our business by acquiring profitable and cash neutral
technology companies with high growth potential. The current worldwide recession has not materially
adversely affected our operations or business plan, and we believe we will continue to increase our
cash position and liquidity for the foreseeable future. We believe we have enough capital to fund
our present operations during the next 12 months.
OFF BALANCE SHEET ARRANGEMENTS
We have no off balance-sheet arrangements.
ITEM 3. PROPERTIES
Our principal executive office is located in Hauppauge, New York, in an executive center,
where we lease approximately 300 square feet of office space. Monthly lease payments are
approximately $2,600 and the lease term expires June 30, 2010.
11
Our Gotham operations are located in New York, New York, where we lease approximately 3,000
square feet of office space. Monthly lease payments are approximately $5,000 and the lease term
expires October 31, 2010.
Our leased properties are suitable for their respective uses and are, in general, adequate for
our present needs. Our properties are subject to various federal, state, and local statutes and
ordinances regulating their operations. Management does not believe that compliance with such
statutes and ordinances will materially affect our business, financial condition, or results of
operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us, as of November 30, 2009, relating to
the beneficial ownership of shares of common stock by: (i) each person who is known by us to be the
beneficial owner of more than 5% of the Companys outstanding common stock; (ii) each director;
(iii) each executive officer; and (iv) all executive officers and directors as a group. Under
securities laws, a person is considered to be the beneficial owner of securities owned by him (or
certain persons whose ownership is attributed to him) or securities that can be acquired by him
within 60 days, including upon the exercise of options, warrants or convertible securities. The
Company determines a beneficial owners percentage ownership by assuming that options, warrants and
convertible securities that are held by the beneficial owner and which are exercisable within 60
days, have been exercised or converted. The Company believes that all persons named in the table
have sole voting and investment power with respect to all shares of common stock shown as being
owned by them. Unless otherwise indicated, the address of each beneficial owner in the table set
forth below is care of iGambit, Inc., 1600 Calebs Path Extension, Suite 114, Hauppauge, New York,
11788. The percentages in the following table are based upon 23,954,056 shares outstanding as of
November 30, 2009.
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Amount and Nature
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of Beneficial
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Name of Beneficial Owner
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Ownership
|
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Percent of Class
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John Salerno, Chief Executive Officer,
President, Chairman of the Board, and Director
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5,616,900
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(1)
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23.3
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%
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Elisa Luqman, Chief Financial Officer,
Executive Vice President, General Counsel and
Director
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5,715,000
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(2)
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23.9
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%
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James J. Charles, Director
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441,000
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1.8
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%
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George G. Dempster, Director
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392,000
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1.6
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%
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John Waters, Director
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-0-
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*
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Mehul Mehta
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2,450,000
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10.2
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%
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Executive Officers and Directors as a Group (5):
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12,164,900
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50.5
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%
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*
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Less than 1.0%
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1.
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Includes: options to purchase 46,900 shares of common stock at $0.01 per share held by John
L. Salerno, Mr. Salernos son; and options to purchase 100,000 shares of common stock at $0.01
per share held by Dean T. Salerno, Mr. Salernos son.
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2.
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Includes 245,000 shares of common stock held by Muhammad Luqman, Ms. Luqmans husband.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
12
DIRECTORS AND EXECUTIVE OFFICERS
Our board of directors manages our business and affairs. Under our Articles of Incorporation
and Bylaws, the Board will consist of not less than one nor more than seven directors. Currently,
our Board consists of five directors.
The names, ages, positions and dates appointed of our current directors and executive officers
are set forth below.
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Name
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Age
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Position
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Appointed
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John Salerno
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71
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Chief Executive
Officer, President,
Chairman of the
Board, and Director
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March 2009
(appointed Chairman
and Director in
April 2000)
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Elisa Luqman
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45
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Chief Financial
Officer, Executive
Vice President,
General Counsel,
and Director
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March 2009
(appointed Director
in August 2009)
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James J. Charles
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67
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Director
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March 2006
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George G. Dempster
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70
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Director
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January 2001
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John Waters
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64
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Director
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August 2009
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John Salerno 71, Chief Executive Officer, President, Chairman of the Board, and Director.
Mr.
Salerno is a seasoned hands-on executive with over 40 years of experience with public and private
computer software and service companies. Mr. Salerno built a multi-million dollar business from a
start up, servicing the real estate industry. The business was sold in 1984 and Mr. Salerno
provided consulting services to a wide range of clients through 1995. In 1996, along with his
daughter and a small group of private accredited investors, he co-founded the Company. After
signing contracts with Verizon and Cablevision, the Company sold its assets in 2006 to Digi-Data
Corporation. From 2006 thru February 2009 Mr. Salerno served as President of the Vault Services
Division of Digi-Data Corporation. Upon the expiration of his 3 year contract the Vault Services
Division was at a revenue run rate of $12 million annually. In March 2009, Mr. Salerno returned to
his full time management roll at the Company. Mr. Salerno is an ex US Marine Corps, Crypto/
Communications Officer and has a BS in Mathematics from Fordham University. Mr. Salerno is Ms.
Luqmans father.
Elisa Luqman 45, Chief Financial Officer, Executive Vice President, General Counsel, and
Director.
Ms. Luqman is a computer literate attorney with over 18 years experience with
intellectual property and computer software. Prior to co-founding the Company, Ms. Luqman was
president of University Software Corp., a software development company focused on a wide range of
student educational and intellectual applications. From 2006 through February 2009 Ms. Luqman was
employed as in-house general counsel by Digi-Data Corporation, the company that acquired the
Companys assets in 2006. In that capacity she was responsible for acquisitions, mergers, patents,
and employee contracts, and worked very closely with the Digi-Datas outside counsel, DLA-Piper.
In March 2009 Ms. Luqman rejoined the Company in her current capacities. Ms Luqman received a BA
degree in Marketing, a JD in Law, and a MBA Degree in Finance from Hofstra University. Ms. Luqman
is a member of the bar in New York and New Jersey. Ms. Luqman is Mr. Salernos daughter.
James J. Charles 67, Director.
Mr. Charles is a certified public accountant, and a high
profile financial executive with a broad base of experience covering a career as a CFO and a Senior
Managing Partner with Ernst & Young . Mr. Charles financial experience is with firms ranging in
size from $24MM to $100MM in annual revenue. He worked closely with management and Boards of
Directors on matters ranging from mergers and acquisitions to stock restructurings and spin-offs.
Mr. Charles education includes studies and management programs at Harvard University, Williams
College. Mr. Charles received his BBA in Accounting at Manhattan College.
George G. Dempster 70, Director.
Mr. Dempster is a former Commissioner of Commerce for the
State of New York. He served as the Chairman of the Finance Committee for Hofstra University for
20 years, and is currently Chairman Emeritus of the Board of Trustees of the University. Mr.
Dempster has served as the CEO of
13
Trans-leisure Corp, a diversified holding company with interests
ranging from helicopter services to manufacturing, and as the CEO of Cybernetics, a major computer
software developer. Mr. Dempster has also served as a marketing manager for IBM. Mr. Dempster has
a BA in business administration from Hofstra University.
John Waters 64, Director.
Mr. Waters is a former Senior Partner at Arthur Andersen
(1967-2001) with exceptional leadership skills and expertise in mergers and acquisitions
(particularly reverse mergers) and 33 Act filings with the Securities and Exchange Commission. Mr.
Waters was involved in raising over $60 million for a special purpose acquisition company (SPAC).
Mr. Waters serves on the audit committee and on the board of Authenticate Holding Corp. (ADAT ) a publicly traded company. He also serves on the board of
two privately held companies. Mr. Waters is a certified public accountant and has a BA degree from
Iona College.
ITEM 6. COMPENSATION
Summary Compensation Table
Effective September 1, 2009 Mr. Salerno and Ms. Luqman became full time employees of the Company
with annual salaries of $225,000 and $200,000 respectively. Prior to September 1, 2009 Mr. Salerno
and Ms. Luqman were employees of Digi-Data Corp.
During 2006 and 2007, Mr. Salerno exercised options to acquire 1,800,000 common shares of the
Company and during 2007 Ms. Luqman exercised options to acquire 1,500,000 common shares of the
Company.
Prior to December 31, 2006, the Company was indebted to officers, John Salerno and Elisa Luqman for
unpaid compensation accrued totaling $350,000. John Salerno received advances against the deferred
compensation in the amounts of $74,281.25 and $44,000 as of December 31 2007 and December 31, 2008
respectively. Elisa Luqman received advances against the deferred compensation in the amounts of
$5,000 and $75,000 as of December 31, 2007 and December 31, 2008 respectively. The advances against
deferred compensation totaling $79,281 and $198,281 as of December 31, 2007 and December 31, 2008
respectively were in the form of a note payable to the Company and were collateralized with the
officers common shares issued and outstanding of 5,470,000 shares each.
During the nine months ended September 30, 2009, the Company paid the total balance to the
officers, who subsequently repaid the advances received.
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Current
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Non-Equity
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Officers
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Incentive
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Nonqualified
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Name &
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Option
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Plan
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Deferred
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All Other
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Principal
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Salary
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Bonus
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Stock
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Awards
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Compensation
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Compensation
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Compensation
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Total
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Position
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Year
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($)
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($)
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($)
(1)
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($)
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($)
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Earnings ($)
|
|
($)
|
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($)
|
John Salerno
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2008
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0
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0
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0
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0
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0
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0
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0
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0
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CEO, President,
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2007
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Chairman & Director
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2006
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Elisa Luqman
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2008
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0
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0
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0
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0
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0
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0
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0
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0
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CFO, Executive VP,
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2007
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General Counsel, &
Director
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2006
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Employment Arrangements with Named Executive Officers
The Company does not currently have any employment agreements with it executive officers.
14
Compensation of the Board of Directors
Members of our Board currently receive $1,000 per quarter for their service to the Company.
Director George Dempster was engaged as an Independent Consultant to Digi-Data Corporation
from the period June 1, 2006 through April 30, 2009. The Company agreed to share equally in the
fees paid to Mr. George Dempster. From the period of February 2006 through February 2009 George
Dempster was paid $179,448 directly from Digi-Data. The $89,724 representing the Companys 50%
share of that expense was deducted by Digi-Data from amounts Digi-Data owed to the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
RELATED PARTY TRANSACTIONS
Pursuant to the terms of the agreements governing the sale of our assets to DDC in 2006, we
will continue to receive Revenue Share Payments from DDC until 2011. In connection with said asset
sale, Mr. Salerno and Ms. Luqman entered into employment agreements with DDC and worked for DDC
until those agreements terminated in February 2009. Notwithstanding the termination of said
employment agreements, Mr. Salerno is entitled, pursuant to the terms thereof, to receive a share
of the net proceeds of any sale or other disposition of all or substantially all of the stock or
assets of DDC that occurs on or before February 2011.
Director George Dempster was engaged as an Independent Consultant to Digi-Data Corporation
from the period June 1, 2006 through April 30, 2009. The Company agreed to share equally in the
fees paid to Mr. George Dempster. From the period of February 2006 through February 2009 George
Dempster was paid $179,448 directly from Digi-Data. The $89,724 representing the Companys 50%
share of that expense was deducted by Digi-Data from amounts Digi-Data owed to the Company.
BOARD INDEPENDENCE AND COMMITTEES
Independence Standard
The Company has elected to use the independence standards of the NYSE AMEX Equities Exchange
in its determination of whether the members of its Board are independent. Based on the foregoing,
the Company has concluded that Mr. Charles, Mr. Waters, and Mr. Dempster are independent. The Board
has established an Audit Committee and a Compensation Committee. The Board does not currently have
a Nominating Committee. The work typically conducted by a Nominating Committee is conducted by the
full Board.
Audit Committee
The Audit Committee presently consists of Messrs. Charles, Waters, and Dempster, with Mr.
Charles serving as chairman. Our Board has determined that Mr. Charles qualifies as an audit
committee financial expert as defined under the federal securities laws. The Audit Committee is
responsible for monitoring and reviewing our financial statements and internal controls over
financial reporting. In addition, they recommend the selection of the independent auditors and
consult with management and our independent auditors prior to the presentation of financial
statements to stockholders and the filing of our forms 10-Q and 10-K. The Company has not adopted a
charter. When a charter is adopted, it will be posted on our web site. The Audit Committee was
established in August 2009, and thus had no meeting in 2008.
15
Compensation Committee
The Compensation Committee presently consists of Messrs. Charles, Waters, and Dempster, with
Mr. Waters serving as chairman. The Compensation Committee is responsible for reviewing and
recommending to the Board the compensation and over-all benefits of our executive officers,
including administering the Companys 2006 Long Term Incentive Plan. The Compensation Committee
may, but is not required to, consult with outside compensation consultants. The Compensation
Committee has not adopted a charter. When a charter is adopted, it will be posted on our web site.
The Compensation Committee was established in August 2009, and thus had no meetings in 2008.
Board Attendance at Annual Meetings
The Company encourages all members of the board to attend the annual meeting of shareholders
in person or by telephone. All of the directors attended the last annual meeting of shareholders.
Selection of Board Nominees
The Companys full Board determines the individuals that will be nominated for election as
directors. While no single factor is determinative, in order to have a Board with skills and
attributes needed to function effectively, the following factors are considered:
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if not a Company employee, the ability to be an independent director;
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educational background, work experience and business knowledge generally;
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willingness and ability to dedicate the time and resources necessary
for the diligent performance of the duties of a director of the
Company;
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professional experience that is relevant to the Companys business;
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character and ethics;
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reputation in the business community;
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previous service on boards, including public companies;
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actual or potential conflicts of interest;
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whether the person has any history of criminal convictions or
violations of governmental rules and regulations; and
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other criteria that are relevant to determining whether the person will function effectively as a director.
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In determining whether to elect a director or to nominate any person for election by the
stockholders, the Board assesses the appropriate size of the Board, consistent with its Bylaws, and
whether any vacancies on the Board are expected due to retirement or otherwise. If vacancies are
anticipated, or otherwise arise, the Board will consider various potential candidates to fill each
vacancy. Candidates may come to the attention of the Board through a variety of sources, including
from current members of the Board, stockholders, or other persons.
The Board has not yet had the occasion to, but will, consider properly submitted proposed
nominations by stockholders who are not directors, officers, or employees of the Company on the
same basis as candidates proposed by any other person. A stockholder may nominate a person for
election as a director at an annual meeting of the stockholders only if written notice of such
stockholders intent to make such nomination has been given the Companys General Counsel as
described in the applicable proxy statement for the previous years annual meeting of stockholders.
Each written notice must set forth: (a) as to each person whom the stockholder proposes to
16
nominate for election as a director, (i) all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election contest, or that is
otherwise required, in each case pursuant to and in accordance with Regulation 14A under the
Securities Exchange Act of 1934, as amended, and (ii) such persons written consent to being named
in the proxy statement as a nominee and to serve as a director if elected; and (b) as to the
stockholder making such nomination, (i) the name and address of such stockholder, as they appear on
the Companys books, (ii) the class and number of shares of stock of the Company which are owned by
such stockholder, (iii) a representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting
to propose such nomination, and (iv) a representation whether the stockholder intends or is a part
of a group which intends (y) to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of the Companys outstanding capital stock required to elect the nominee
and/or (z) otherwise to solicit proxies from stockholders in support of such nomination. The Board
will evaluate the suitability of potential candidates nominated by stockholders in the same manner
as other candidates identified to the Board.
Stockholder Communications with the Board
Stockholders wishing to communicate with the Companys Board as a whole or with certain
directors, including committee chairpersons or the Chairman of the Board, individually, may do so
by writing the General Counsel at the Companys headquarters at 1600 Calebs Path Extension, Suite
114, Hauppauge, New York, 11788. Each stockholder communication should include an indication of the
submitting stockholders status as a stockholder of the Company and eligibility to submit such
communication. Each such communication will be received for handling by the General Counsel, who
will maintain originals of each communication received and provide copies to (i) the Chairman and
(ii) any other appropriate committee(s) or director(s) based on the expressed desire of the
communicating stockholder and content of the subject communication. The General Counsel will also
coordinate with the Chairman to facilitate a response, if it is believed that a response is
appropriate or necessary, to each communication received. The Board, or a designated committee of
the Board, will review all stockholder communications received on a periodic basis. The Board
reserves the right to revise this policy in the event that this process is abused, becomes
unworkable or otherwise does not efficiently serve the purpose of the policy.
|
|
|
ITEM 8.
|
|
LEGAL PROCEEDINGS.
|
None.
|
|
|
ITEM 9.
|
|
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
|
MARKET INFORMATION
To date there has not been an established public trading market in the Companys common stock.
The Companys securities are not listed on any exchange or over the counter market. The Company
does not have a ticker symbol.
HOLDERS
As of November 30, 2009, there are 23,954,056 shares of our common stock outstanding, held of
record by 149 persons. We have 3,085,000 common stock warrants outstanding, and 1,796,900 common
stock options outstanding. No shares are being publicly offered by us pursuant to this
Registration Statement on Form 10.
As of November 30, 2009, 21,737,018 shares of our common stock are eligible to be sold under
Rule 144.
17
DIVIDENDS
We have never declared or paid any dividends on our common stock. Any determination to pay
dividends in the future will be at the discretion of our Board of Directors and will be dependent
upon our results of operations, financial condition, capital requirements, contractual restrictions
and other factors deemed relevant by the Board of Directors. The Board of Directors is not expected
to declare dividends or make any other distributions in the foreseeable future, but instead intends
to retain earnings, if any, for use in business operations.
EQUITY COMPENSATION PLAN INFORMATION
We currently have one equity compensation plan outstanding which is our 2006 Long Term
Incentive Plan. The Plan was adopted by our directors and approved by our stockholders on March
26, 2006. The Plan permits the award of incentive stock options, non-qualified stock options,
stock appreciation rights, and stock grants. We have reserved 10 million shares for issuance under
the Plan, plus an annual increase equal to 10% of the number of outstanding shares of our common
stock on the first day of each year, but in no event more than 15 million shares of common stock in
the aggregate. As of November 30, 2009, there were 4,798,708 shares available for issuance under
the Plan.
The following table describes our equity compensation plans as of November 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
Number of Securities
|
|
|
|
|
|
under Equity
|
|
|
to be Issued Upon
|
|
Weighted Average
|
|
Compensation Plans
|
|
|
Exercise of
|
|
Exercise Price of
|
|
(excluding securities
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
referenced in
|
|
|
Warrants and Rights
|
|
Warrants and Rights
|
|
column (a))
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation
plans approved by
our stockholders
(1)
|
|
|
1,796,900
|
|
|
$
|
0.01
|
|
|
|
4,798,708
|
|
Equity compensation
plans not approved
by our stockholders
|
|
|
2,310,000
|
|
|
$
|
0.75
|
|
|
|
0
|
|
|
|
|
(1)
|
|
Equity compensation plans approved by our stockholders consist of our 2006 Long Term Incentive Plan.
|
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In the past three years, we have sold the following securities in transactions not registered
under the Securities Act of 1933, as amended (the Securities Act):
On May 26, 2009, we issued warrants to purchase 2,000,000 shares of our common stock to
Newbridge Securities pursuant to the terms of a consulting agreement between the Company and
Newbridge. 500,000 warrants, at an exercise price of $0.50 per share, vested upon issuance;
500,000 warrants, at an exercise price of $0.65 per share, vest on the 1 year anniversary of
issuance; 500,000 warrants, at an exercise price of $0.80 per share, vest on the 2 year anniversary
of issuance; and 500,000 warrants, at an exercise price of $1.15 per share, vest on the 3 year
anniversary of issuance. The securities were issued in reliance on Section 4(2) of the Securities
Act. The issued securities are restricted, and the agreements representing the securities contain
a standard restrictive legend.
On June 1, 2009, we issued warrants to purchase 250,000 shares of our common stock to Roetzel
& Andress pursuant to the terms of an engagement letter between the Company and Roetzel. 100,000
warrants, at an exercise price of $0.50 per share, vested upon issuance; 50,000 warrants, at an
exercise price of $0.65 per share, vest on the 1 year anniversary of issuance; 50,000 warrants, at
an exercise price of $0.85 per share, vest on the 2 year anniversary of issuance; and 50,000
warrants, at an exercise price of $1.15 per share, vest on the 3 year anniversary
18
of issuance. The securities were issued in reliance on Section 4(2) of the Securities Act. The issued securities
are restricted, and the agreements representing the securities contain a standard restrictive
legend.
On October 1, 2009, we issued 500,000 shares of our common stock and options to purchase
1,500,000 shares of our common stock, at $0.01 per share, to Jekyll in connection with our
acquisition of the assets of Jekyll. The securities were issued in reliance on Section 4(2) of the
Securities Act. The issued securities are restricted, and the certificates representing the shares
contain a standard restrictive legend.
ITEM 11. DESCRIPTION OF REGISTRANTS SECURITIES TO BE REGISTERED
AUTHORIZED CAPITAL STOCK
Common Stock
Our Articles of Incorporation authorize us to issue up to 75,000,000 shares of common stock,
$0.001 par value per share. As of November 30, 2009, 23,954,056 shares of our common stock were
issued and outstanding. Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Cumulative voting of shares in
elections of directors is not permitted. Holders of common stock are entitled to receive ratably
such dividends as may be declared by the board of directors out of funds legally available
therefore. In the event of a liquidation, dissolution or winding up of the Company, holders of
common stock are entitled to share ratably in all assets remaining after payment of liabilities and
the liquidation preference of any then outstanding preferred stock, if any. The common stock has no
preemptive or other subscription rights. No
redemption or sinking fund provisions apply to the common stock. All outstanding shares of common
stock are duly authorized, validly issued, fully paid, and nonassessable. The rights, preferences
and privileges of holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may designate and issue
in the future.
TRANSFER AGENT AND REGISTRAR
We have not engaged a transfer agent.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Bylaws provide that we shall indemnify our officers, directors, employees and agents to
the extent permitted by the Delaware General Corporation Law. Section 145 of the Delaware General
Corporation Law provides that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses, including attorneys fees, judgments, fines and amounts
paid in settlement, that are incurred in connection with various actions, suits or proceedings,
whether civil, criminal, administrative or investigative other than an action by or in the right of
the corporation, a derivative action. In order to be eligible for indemnification under Section
145, the director, officer, employee or other individual must have acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys fees incurred in
connection with the defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification has been found
liable to the corporation. The statute provides that it is not exclusive of other indemnification
that may be granted by a corporations certificate of incorporation, bylaws, agreement, a vote of
stockholders or disinterested directors or otherwise.
Our Articles of Incorporation provide that our directors shall not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a director except for
liability: (i) for any breach of the directors duty of loyalty to us or our stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the director derived any improper personal benefit.
19
Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers and controlling persons of the Company pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15. Financial Statements and Exhibits of this Registration Statement on Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-1
|
Balance Sheet as of December 31, 2008 and 2007
|
|
F-2
|
Statement of Income for the years ended December 31, 2008 and 2007
|
|
F-3
|
Statement of Changes in Stockholders Equity for the years ended December 31, 2008 and 2007
|
|
F-4
|
Statement of Cash Flows for the years ended December 31, 2008 and 2007
|
|
F-5
|
Notes to Financial Statements
|
|
F-6
|
|
Consolidated Balance Sheet as of September 30, 2009 and December 31, 2008
|
|
F-15
|
Consolidated Statement of Income for the nine months ended September 30, 2009 and 2008
|
|
F-16
|
Consolidated Statement of Cash Flows for the nine months ended September 30, 2009 and 2008
|
|
F-18
|
Notes to Financial Statements
|
|
F-19
|
20
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
3.1(i)
|
|
Certificate of Incorporation, filed with the Delaware
Secretary of State on April 13, 2000
|
|
|
|
3.1(ii)
|
|
Certificate of Merger, filed with the Delaware Secretary of
State on April 18, 2000
|
|
|
|
3.1(iii)
|
|
Certificate of Amendment Changing Name, filed with the
Delaware Secretary of State on December 19, 2000
|
|
|
|
3.1(iv)
|
|
Certificate of Merger filed with the Delaware Secretary of
State on February 17, 2006
|
|
|
|
3.1(v)
|
|
Certificate of Amendment Changing Name filed with the Delaware
Secretary of State on April 5, 2006
|
|
|
|
3.1(vi)
|
|
Certificate of Amendment Increasing Authorized Common Stock to
75 Million Shares, filed with the Delaware Secretary of State
on December 2, 2009
|
|
|
|
3.2
|
|
Bylaws
|
|
|
|
5.1
|
|
Legal opinion of Roetzel & Andress (1)
|
|
|
|
10.1
|
|
iGambit, Inc. 2006 Long Term Incentive Plan, Amended 12/31/2006
|
|
|
|
10.2
|
|
Asset Purchase Agreement between the Company and Digi-Data
Corporation, dated December 21, 2005.
|
|
|
|
10.3
|
|
Asset Purchase Agreement and Plan of Reorganization between
Jekyll Island Ventures Inc. and Gotham Innovation Lab Inc.,
dated September 30, 2009
|
|
|
|
10.4
|
|
Newbridge Consulting Agreement (1)
|
|
|
|
21
|
|
Subsidiaries
|
|
|
|
23.1
|
|
Consent of Michael F. Albanese, CPA
|
|
|
|
23.2
|
|
Consent of Roetzel & Andress (included in Exhibit 5.1)
|
(1) To be filed by amendment.
21
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant
has duly caused this registration statement on Form 10 to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
Dated: December 31, 2009
|
iGAMBIT, INC.
|
|
|
By:
|
/s/ John Salerno
|
|
|
|
John Salerno
|
|
|
|
Chief Executive Officer
|
|
|
In accordance with the requirements of the Securities Act of 1933, this registration statement was
signed by the following person in the capacities and date stated.
|
|
|
/s/ John Salerno
|
|
December 31, 2009
|
|
|
|
Chairman of the Board, Chief Executive Officer,
|
|
|
President, and Director
|
|
|
(Principal Executive Officer)
|
|
|
|
/s/ Elisa Luqman
|
|
December 31, 2009
|
|
|
|
Chief Financial Officer, Executive Vice President,
|
|
|
General Counsel, and Director
|
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
|
|
22
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of:
iGambit Inc.
I have audited the accompanying balance sheets of iGambit Inc. as of December 31,2008 and December
31,2007 and the related statements of income, changes in stockholders equity, and cash flows for
the years then ended. These financial statements are the responsibility of the Companys
management. My responsibility is to express an opinion on these financial statements based on my
audits.
I conducted my audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects,
the financial position ofiGambit Inc. as of December 31, 2008 and December 31,2007, and the results
ofits operations and cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
Michael F. Albanese, CPA Parsippany, NJ
August 28, 2009
F-1
IGAMBIT INC. BALANCE SHEETS DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
322,439
|
|
|
$
|
40,907
|
|
Notes receivable stockholders
|
|
|
17,000
|
|
|
|
|
|
Assets from discontinued operations
|
|
|
646,488
|
|
|
|
545,542
|
|
Total current assets
|
|
|
985,927
|
|
|
|
586,449
|
|
Property and equipment, net
|
|
|
1,491
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Notes receivable stockholders
|
|
|
198,281
|
|
|
|
89,281
|
|
Assets from discontinued operations
|
|
|
264,477
|
|
|
|
434,682
|
|
Total other assets
|
|
|
462,758
|
|
|
|
523,963
|
|
|
|
$
|
1,450,176
|
|
|
$
|
1,110,412
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,754
|
|
|
$
|
2,659
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Liabilities from discontinued operations
|
|
|
491,538
|
|
|
|
706,143
|
|
Total liabilities
|
|
|
496,292
|
|
|
|
708,802
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; authorized
30,000,000 shares; issued and outstanding
22,719,056 shares in 2008 and 21,737,018 in 2007
|
|
|
22,719
|
|
|
|
21,737
|
|
Additional paid-in capital
|
|
|
1,725,248
|
|
|
|
1,650,249
|
|
Accumulated deficit
|
|
|
(794,083
|
)
|
|
|
(1,270,376
|
)
|
Total stockholders equity
|
|
|
953,884
|
|
|
|
401,610
|
|
|
|
$
|
1,450,176
|
|
|
$
|
1,110,412
|
|
The accompanying notes are an integral part of the financial statements.
F-2
IGAMBIT INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
123,689
|
|
|
|
120,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(123,689
|
)
|
|
|
(120,271
|
)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,554
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax benefit
|
|
|
(121,135
|
)
|
|
|
(119,454
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(44,065
|
)
|
|
|
(43,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(77,070
|
)
|
|
|
(76,125
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations (net of taxes of $361,286
and $156,790)
|
|
|
553,363
|
|
|
|
240,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
476,293
|
|
|
$
|
164,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.01
|
)
|
|
$
|
(.01
|
)
|
Discontinued operations, net of tax
|
|
$
|
.03
|
|
|
$
|
.02
|
|
|
|
|
|
|
|
|
Net earnings per common share
|
|
$
|
.02
|
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
22,402,104
|
|
|
|
20,528,799
|
|
|
|
|
|
|
|
|
Diluted weighted average shares and equivalent shares outstanding
|
|
|
22,407,245
|
|
|
|
20,538,354
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-3
IGAMBIT INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
18,062,018
|
|
|
$
|
18,062
|
|
|
$
|
1,617,174
|
|
|
$
|
(1,434,396
|
)
|
|
$
|
200,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in consideration of cashless exercise of
options, valued at $.01 per share
|
|
|
3,675,000
|
|
|
|
3,675
|
|
|
|
33,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,020
|
|
|
|
164,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
21,737,018
|
|
|
|
21,737
|
|
|
|
1,650,249
|
|
|
|
(1,270,376
|
)
|
|
|
401,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in consideration of cashless exercise of
options, valued at $.01 per share
|
|
|
788,100
|
|
|
|
788
|
|
|
|
7,093
|
|
|
|
|
|
|
|
7,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exercise of warrants, valued at $.01 per share
|
|
|
60,000
|
|
|
|
60
|
|
|
|
540
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exercise of warrants, valued at $.50 per share
|
|
|
135,000
|
|
|
|
135
|
|
|
|
67,365
|
|
|
|
|
|
|
|
67,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock retired
|
|
|
(1,062
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,293
|
|
|
|
476,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
22,719,056
|
|
|
$
|
22,719
|
|
|
$
|
1,725,248
|
|
|
$
|
(794,083
|
)
|
|
$
|
953,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
F-4
IGAMBIT INC.
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(77,070
|
)
|
|
$
|
(76,125
|
)
|
Adjustments to reconcile loss from continuing operations to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
373
|
|
|
|
|
|
Stock-based compensation
|
|
|
7,881
|
|
|
|
36,750
|
|
Increase (Decrease) in cash flows as a result of changes in asset and liability
account balances:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
2,095
|
|
|
|
(21,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by continuing operating activities
|
|
|
(66,721
|
)
|
|
|
(60,493
|
)
|
Net cash provided by discontinued operating activities
|
|
|
741,174
|
|
|
|
130,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
674,453
|
|
|
|
70,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,864
|
)
|
|
|
|
|
Loans to stockholders
|
|
|
(126,000
|
)
|
|
|
(89,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by continuing investing activities
|
|
|
(127,864
|
)
|
|
|
(89,281
|
)
|
Net cash (used) provided by discontinued investing activities
|
|
|
(118,552
|
)
|
|
|
54,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY INVESTING ACTIVITIES
|
|
|
(246,416
|
)
|
|
|
(34,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
68,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing financing activities
|
|
|
68,100
|
|
|
|
|
|
Net cash (used) provided by discontinued financing activities
|
|
|
(214,605
|
)
|
|
|
3,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
|
|
|
(146,505
|
)
|
|
|
3,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
281,532
|
|
|
|
38,581
|
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING OF YEAR
|
|
|
40,907
|
|
|
|
2,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH END OF YEAR
|
|
$
|
322,439
|
|
|
$
|
40,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
67
|
|
|
$
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Cashless exercise of common stock options
|
|
$
|
7,881
|
|
|
$
|
36,750
|
|
The accompanying notes are an integral part of the financial statements.
F-5
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Note 1 Organization and Basis of Presentation
The financial statements presented are those of iGambit Inc., (the Company). The Company was
incorporated under the laws of the State of Delaware on April 13, 2000. The Company was originally
incorporated as Compusations Inc. under the laws of the State of New York on October 2, 1996. The
Company changed its name to BigVault.com Inc. upon changing its state of domicile on April
13, 2000. The Company changed its name again to bigVault Storage Technologies Inc. on December 22,
2000 before changing to iGambit Inc. on July 18, 2006.
Merger Transaction
On December 19, 2005, the Company executed a certificate of merger whereby BigVault Inc. (a Nevada
corporation) merged into the Company leaving the Company as the surviving corporation. Pursuant to
the certificate of merger, each share of Big Vault Inc.s common stock issued and outstanding was
converted to one share of the Companys common stock.
Note 2
Discontinued Operations
Sale of Business
On February 28, 2006, the Company entered into an asset purchase agreement with Digi-Data
Corporation (Digi-Data), whereby Digi-Data acquired the Companys assets and its online digital
vaulting business operations in exchange for $1,500,000, which was deposited into an escrow
account for payment of the Companys outstanding liabilities. In addition, as part of the sales
agreement, the Company receives payments from Digi-Data based on 10% of the net vaulting revenue
payable quarterly over five years. The Company is also entitled to an additional 5% of the
increase in net vaulting revenue over the prior years revenue. These adjustments to the sales
price are included in the discontinued operations line of the statements of income.
The assets and liabilities of the discontinued operations are presented in the balance sheets under
the captions Assets of discontinued operations and Liabilities of discontinued operations. The
underlying assets and liabilities of the discontinued operations for the years ended December 31
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
367,430
|
|
|
$
|
240,183
|
|
Deferred income taxes
|
|
|
279,058
|
|
|
|
305,359
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
165,727
|
|
|
|
47,175
|
|
Deferred income taxes
|
|
|
98,750
|
|
|
|
387,507
|
|
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
$
|
910,965
|
|
|
$
|
980,224
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Prepaid contingency
|
|
$
|
141,538
|
|
|
$
|
356,143
|
|
Deferred compensation
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
$
|
491,538
|
|
|
$
|
706,143
|
|
|
|
|
|
|
|
|
F-6
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Accounts Receivable
Accounts receivable includes 50% of contingency payments earned for the previous quarter.
Restricted Cash
An escrow account was established in connection with the sale of business to Digi-Data to hold
funds for contingent liabilities. Under the terms of the sale, 25% of the quarterly contingency
payments are deposited into the escrow account for a period of three years. Also under the terms of
the sale, 50% of the balance of the escrow funds held will be released after three years, and the
remaining balance released after two more years. The escrow account balance was $165,727 and
$47,175 at December 31, 2008 and 2007, respectively.
Prepaid Contingency
Prepaid contingency includes cash and expenses advanced by Digi-Data prior to the sale. The
balance is being repaid with 25% of quarterly contingency payments earned that is retained by
Digi-Data. The prepaid contingency balance was $141,538 and $356,143 as of December 31, 2008 and
2007, respectively.
Deferred Compensation
The Company is indebted to two former officers for unpaid compensation totaling $350,000. The
officers received advances against the deferred compensation totaling $198,281 and $79,281 as of
December 31, 2008 and 2007, respectively.
Note 3 Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reporting amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include checking and money market
accounts and any highly liquid debt instruments purchased with a maturity of three months or less.
F-7
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Revenue Recognition
Contingency payments are recognized quarterly as an adjustment of the sales price of the business
sold from a percentage of Digi-Datas vaulting service revenue and is included in discontinued
operations.
Property and equipment and depreciation
Property and equipment are stated at cost. Depreciation for both financial reporting and income
tax purposes is computed using combinations of the straight line and accelerated methods over the
estimated lives of the respective assets. During the year ended December 31, 2008, the Company
purchased computer equipment totaling $1,864. Computer equipment is depreciated over 5 years.
Maintenance and repairs are charged to expense when incurred. When property and equipment are
retired or otherwise disposed of, the related cost and accumulated depreciation are removed from
the respective accounts and any gain or loss is credited or charged to income.
Depreciation expense of $373 was charged to operations for the year ended December 31, 2008.
Stock-Based Compensation
As of December 31, 2008, the Company has a stock-based employee compensation plan which it
accounts for applying SFAS No. 123(R) (SFAS 123(R)), Share-Based Payment. Under SFAS 123(R),
the Company is required to select a valuation technique or option-pricing model that meets the
criteria as stated in the standard, which includes a binomial model and the Black-Scholes model.
At the present time, the Company applies the Black-Scholes model. SFAS 123(R) also requires the
Company to estimate forfeitures in calculating the expense relating to stock-based compensation as
opposed to only recognizing these forfeitures and the corresponding reduction in expense as they
occur.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the statement of operations in the period that includes the enactment date.
F-8
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Note 4 Earnings Per Common Share
Earnings per common share is computed based on the weighted average common shares outstanding
during the year. Diluted net income per share is computed using the treasury stock method to
calculate the weighted average number of common shares and, if dilutive, potential common shares
outstanding during the year. Potential dilutive common shares include unvested restricted shares
and the incremental common shares issuable upon the exercise of stock options and warrants. The
following table presents the calculation of the basic earnings per share and the fully diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
476,293
|
|
|
$
|
164,020
|
|
|
|
|
|
|
|
|
Determination of shares:
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
22,402,104
|
|
|
|
20,528,799
|
|
Assumed conversion of:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
2,860
|
|
|
|
5,027
|
|
Warrants
|
|
|
2,281
|
|
|
|
4,528
|
|
|
|
|
|
|
|
|
Diluted average common shares outstanding
|
|
|
22,407,245
|
|
|
|
20,538,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
.02
|
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
Fully diluted income per share
|
|
$
|
.02
|
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
Note 5 Warrants and Stock Option Plan
Warrants
Warrant activity during the years ended December 31, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Warrants outstanding at January 1, 2007
|
|
|
1,652,518
|
|
|
$
|
0.67
|
|
No warrant activity during 2007
|
|
|
0
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2007
|
|
|
1,652,518
|
|
|
|
0.67
|
|
Issued during 2008
|
|
|
60,000
|
|
|
|
0.01
|
|
Exercised during 2008
|
|
|
(195,000
|
)
|
|
|
0.35
|
|
Expired during 2008
|
|
|
(682,518
|
)
|
|
|
0.32
|
|
|
|
|
|
|
|
|
Warrants outstanding at December 31, 2008
|
|
|
835,000
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
During 2008, the Company issued 60,000 warrants to a consultant, which were valued at $600
and expensed and included in general and administrative expenses.
F-9
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Stock Option Plan
Stock Option Plan activity during the years ended December 31, 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Options outstanding and exercisable at January 1, 2007
|
|
|
2,510,000
|
|
|
$
|
0.01
|
|
Granted during 2007
|
|
|
3,000,000
|
|
|
|
0.01
|
|
Exercised during 2007
|
|
|
(3,675,000
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at December 31, 2007
|
|
|
1,835,000
|
|
|
$
|
0.01
|
|
Exercised during 2008
|
|
|
(788,100
|
)
|
|
|
0.01
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at December 31, 2008
|
|
|
1,046,900
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life at December 31, 2008, for all options is 7.33
years.
In 2006, the Company adopted the 2006 Long-Term Incentive Plan (the 2006 Plan). The 2006 Plan
provides for the granting of options to purchase up to 5,510,000 shares of common stock. 4,463,100
options have been exercised to date. There are 1,046,900 options outstanding under the 2006 Plan.
On May 1, 2007, the Company granted 3,000,000 stock options to a director and a consultant at
exercise prices approximating fair market value of the stock on the date of the grant. Such
issuances to directors and employees were valued at $36,750, utilizing similar factors as described
below, which were expensed and are included in general and administrative expenses.
The fair value of each warrant and option is estimated on the date of grant based on the
Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate;
volatility; and expected remaining lives of the awards. The assumptions used in calculating the
fair value of share-based payment awards represent managements best estimates, but these
estimates involve inherent uncertainties and the application of management judgment. In addition,
the Company is required to estimate the expected forfeiture rate and only recognize expense for
those shares expected to vest. In estimating the Companys forfeiture rate, the Company analyzed
its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested
options as a percentage of total options outstanding.
The fair value of warrants and options granted is estimated on the date of grant based on the
weighted-average assumptions in the table below. The assumption for the expected life is based on
evaluations of historical and expected exercise behavior. The risk-free interest rate is based on
the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the
expected life at the grant date. The historical stock volatility of the Companys common stock is
used as the basis for the volatility assumption.
F-10
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Stock Option Plan (Contd)
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2008
|
|
2007
|
Weighted average risk-free rate
|
|
|
4.64
|
%
|
|
|
5.36
|
%
|
Average expected life in years
|
|
|
5.8
|
|
|
|
7.7
|
|
Expected dividends
|
|
None
|
|
None
|
Volatility
|
|
|
20
|
%
|
|
|
20
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Note 6 Common Stock Issued
During the year ended December 31, 2008, warrants were exercised for 135,000 shares of common
stock, valued at $.50 per share, and for 60,000 shares of common stock, valued at $.01 per share.
As of December 31, 2008, there were 1,031,900 warrants outstanding exercisable at various prices.
Note 6 Common Stock Issued (Contd)
Dividends may be paid on outstanding shares as declared by the Board of Directors from time to
time. Each share of common stock is entitled to one vote.
Note 7 Income Taxes
The tax provision at December 31 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(46,228
|
)
|
|
$
|
(44,692
|
)
|
State and local
|
|
|
2,163
|
|
|
|
1,363
|
|
Deferred tax expense:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
285,370
|
|
|
|
123,844
|
|
State and local
|
|
|
75,916
|
|
|
|
32,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
317,221
|
|
|
$
|
113,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) attributable to:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(44,065
|
)
|
|
$
|
(43,329
|
)
|
Discontinued operations
|
|
|
361,286
|
|
|
|
156,790
|
|
|
|
|
|
|
|
|
|
|
$
|
317,221
|
|
|
$
|
113,461
|
|
|
|
|
|
|
|
|
The Company recognizes deferred tax assets and liabilities based on the future tax consequences of
events that have been included in the financial statements or tax returns. The differences relate
primarily to net operating loss carryovers and to deferred compensation. Deferred tax assets and
liabilities are calculated based on the difference between the financial reporting and tax bases
of assets and liabilities using the currently enacted tax rates in effect during the years in
which the differences are expected to reverse. Deferred taxes are classified as current or
non-current, depending on the classification of the assets and liabilities to which they relate.
F-11
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Note 7 Income Taxes (Contd)
The Companys provision for income taxes differs from applying the statutory U.S. federal income
tax rate to income before income taxes. The primary differences result from providing for state
income taxes and from deducting certain expenses for financial statement purposes but not for
federal income tax purposes.
In accordance with Statement of Financial Accounting Standards (FAS) No. 109, Accounting for
Income Taxes (FAS 109), a valuation allowance is established based on the future recoverability
of deferred tax assets. This assessment is based upon consideration of available positive and
negative evidence, which includes, among other things, the Companys most recent results of
operations and expected future profitability. Management has determined that no valuation
allowance related to deferred tax assets is necessary at December 31, 2008 and 2007.
The deferred tax assets included in assets from discontinued operations in the accompanying
balance sheets includes the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
279,058
|
|
|
$
|
305,359
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
288,757
|
|
Deferred compensation
|
|
|
98,750
|
|
|
|
98,750
|
|
|
|
|
|
|
|
|
|
|
$
|
377,808
|
|
|
$
|
692.866
|
|
|
|
|
|
|
|
|
In June 2006, the FASB issued Interpretation No. 48 (FIN 48) Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (SFAS 109). This interpretation clarifies the
accounting for uncertainty in income taxes recognized in a companys financial statements in
accordance with SFAS 109, Accounting for Income Taxes. FIN 48 details how companies should
recognize, measure, present, and disclose uncertain tax positions that have been or are expected to
be taken. As such, financial statements will reflect expected future tax consequences of uncertain
tax positions presuming the taxing authorities full knowledge of the position and all relevant
facts. FIN 48 will not have a material impact on the financial statements of the Company.
Note 8
Risks and Uncertainties
Contingency Payments Discontinued Operations
The discontinued operations of contingency payments, as an adjustment to the sales price of the
business sold, received from Digi-Data is the Companys sole source of revenue. Should Digi-Data
not achieve sufficient vaulting revenue or continue to exist, substantial doubt would be raised as
to the Companys ability to continue to exist, as the Company has no other source of revenue.
F-12
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Uninsured Cash Balances
Substantially all amounts of cash accounts held at financial institutions are insured by the FDIC.
Note 9
Related Party Transactions
Notes Receivable Stockholders
The Company provided loans to a stockholder totaling $17,000 and $10,000 at December 31, 2008 and
2007, respectively. The loans bear interest at a rate of 6% and are due on December 31, 2009.
Accrued interest on the note was $698 and $123 for the years ended December 31, 2008 and 2007,
respectively.
The Company provided advances to two stockholders and former officers totaling $198,281 and $79,281
as of December 31, 2008 and 2007, respectively, against their respective deferred compensation
balances. The advances to the stockholders are collateralized with their common shares issued and
outstanding of 5,470,000 shares each.
Lease Commitment
The Company does not lease or rent any property. Office services are provided without charge by
Digi-Data. Such costs are immaterial to the financial statements and, accordingly, have not been
reflected therein.
Note 10 Commitments and Contingencies
The Company provides accruals for all direct costs associated with the estimated resolution of
contingencies at the earliest date at which it is deemed probable that a liability has been
incurred and the amount of such liability can be reasonably estimated.
Note 11 Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. This Statement establishes the FASB
Accounting Standards Codification, (Codification) as the single source of authoritative GAAP to
be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC
under authority of federal securities laws, which are sources of authoritative GAAP for SEC
registrants. All guidance contained in the Codification carries an equal level of authority. The
Company is required to adopt this standard in the first quarter of fiscal year 2010.
F-13
IGAMBIT INC.
Notes to Financial Statements
December 31, 2008 and 2007
Note 11 Recent Accounting Pronouncements (Contd)
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165), which establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. The Company is
required to adopt SFAS 165 prospectively to both interim and annual financial periods ending after
June 15, 2009. The adoption of the standard is not expected to result in a change in current
practice.
In April 2009, three FASB Staff Positions (FSPs) were issued addressing fair value of financial
instruments: FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly;
FSP FAS 115-2, Recognition and Presentation of Other Than Temporary Impairments; and FSP FAS
107-1,Interim Disclosure about Fair Value of Financial Instruments. The Company will adopt these
FSPs in its fourth quarter of fiscal year 2009. The adoption of these FSPs is not expected to have
a material impact on the Companys financial condition and results of operations.
F-14
IGAMBIT INC.
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
SEPTEMBER 30,
|
|
|
DECEMBER 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
772,507
|
|
|
$
|
322,439
|
|
Prepaid expenses
|
|
|
1,703
|
|
|
|
|
|
Notes receivable stockholders
|
|
|
17,000
|
|
|
|
17,000
|
|
Assets from discontinued operations
|
|
|
580,237
|
|
|
|
646,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,371,447
|
|
|
|
985,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,044
|
|
|
|
1,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Notes receivable stockholders
|
|
|
|
|
|
|
198,281
|
|
Deposits
|
|
|
2,600
|
|
|
|
|
|
Assets from discontinued operations
|
|
|
150,609
|
|
|
|
264,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
153,209
|
|
|
|
462,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,525,700
|
|
|
$
|
1,450,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,121
|
|
|
$
|
4,754
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Liabilities from discontinued operations
|
|
|
|
|
|
|
491,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,121
|
|
|
|
496,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; authorized
30,000,000 shares; issued and outstanding
23,454,056 shares in 2009 and 22,719,056 in 2008
|
|
|
23,454
|
|
|
|
22,719
|
|
Additional paid-in capital
|
|
|
1,732,013
|
|
|
|
1,725,248
|
|
Accumulated deficit
|
|
|
(231,888
|
)
|
|
|
(794,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,523,579
|
|
|
|
953,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,525,700
|
|
|
$
|
1,450,176
|
|
|
|
|
|
|
|
|
F-15
IGAMBIT INC.
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
297,272
|
|
|
|
84,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(297,272
|
)
|
|
|
(84,349
|
)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
Miscellaneous income
|
|
|
4,160
|
|
|
|
|
|
Interest income
|
|
|
3,275
|
|
|
|
1,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
7,435
|
|
|
|
1,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax benefit
|
|
|
(289,837
|
)
|
|
|
(82,507
|
)
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(107,059
|
)
|
|
|
(29,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(182,778
|
)
|
|
|
(53,200
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations (net of taxes of $486,388
and $237,932)
|
|
|
744,973
|
|
|
|
364,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
562,195
|
|
|
$
|
311,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted earnings per common share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.01
|
)
|
|
$
|
(.01
|
)
|
Discontinued operations, net of tax
|
|
$
|
.03
|
|
|
$
|
.02
|
|
|
|
|
|
|
|
|
Net earnings per common share
|
|
$
|
.02
|
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
22,859,056
|
|
|
|
22,301,379
|
|
|
|
|
|
|
|
|
Diluted weighted average shares and equivalent
shares outstanding
|
|
|
22,871,444
|
|
|
|
22,309,354
|
|
|
|
|
|
|
|
|
F-16
IGAMBIT INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
21,737,018
|
|
|
$
|
21,737
|
|
|
$
|
1,650,249
|
|
|
$
|
(1,270,376
|
)
|
|
$
|
401,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in
consideration
of cashless exercise of options,
valued at $.01 per share
|
|
|
788,100
|
|
|
|
788
|
|
|
|
7,093
|
|
|
|
|
|
|
|
7,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exercise
of warrants, valued at $.01 per
share
|
|
|
60,000
|
|
|
|
60
|
|
|
|
540
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in exercise
of warrants, valued at $.50 per
share
|
|
|
135,000
|
|
|
|
135
|
|
|
|
67,365
|
|
|
|
|
|
|
|
67,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock retired
|
|
|
(1,062
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,293
|
|
|
|
476,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
22,719,056
|
|
|
|
22,719
|
|
|
|
1,725,248
|
|
|
|
(794,083
|
)
|
|
|
953,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in
consideration
of cashless exercise of options,
valued at $.01 per share
|
|
|
735,000
|
|
|
|
735
|
|
|
|
6,765
|
|
|
|
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562,195
|
|
|
|
562,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2009
|
|
|
23,454,056
|
|
|
$
|
23,454
|
|
|
$
|
1,732,013
|
|
|
$
|
(231,888
|
)
|
|
$
|
1,523,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
IGAMBIT INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(182,778
|
)
|
|
$
|
(53,200
|
)
|
Adjustments to reconcile loss from continuing operations to net
cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
447
|
|
|
|
280
|
|
Stock-based compensation
|
|
|
7,500
|
|
|
|
7,350
|
|
Increase (Decrease) in cash flows as a result of
changes in asset and liability account balances:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(1,703
|
)
|
|
|
|
|
Accounts payable
|
|
|
(2,633
|
)
|
|
|
2,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by continuing operating activities
|
|
|
(179,167
|
)
|
|
|
(43,475
|
)
|
Net cash provided by discontinued operating activities
|
|
|
909,974
|
|
|
|
568,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
730,807
|
|
|
|
524,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(1,864
|
)
|
Increase in deposits
|
|
|
(2,600
|
)
|
|
|
|
|
Payments received from loans to stockholders
|
|
|
198,281
|
|
|
|
|
|
Loans to stockholders
|
|
|
|
|
|
|
(106,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by continuing investing activities
|
|
|
195,681
|
|
|
|
(108,364
|
)
|
Net cash provided (used) by discontinued investing activities
|
|
|
15,118
|
|
|
|
(75,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
|
|
210,799
|
|
|
|
(184,240
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
68,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing financing activities
|
|
|
|
|
|
|
68,100
|
|
Net cash used by discontinued financing activities
|
|
|
(491,538
|
)
|
|
|
(163,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY FINANCING ACTIVITIES
|
|
|
(491,538
|
)
|
|
|
(95,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
450,068
|
|
|
|
244,825
|
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING OF PERIOD
|
|
|
322,439
|
|
|
|
40,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH END OF PERIOD
|
|
$
|
772,507
|
|
|
$
|
285,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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|
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|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,189
|
|
|
$
|
6
|
|
Income taxes
|
|
|
4,698
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Cashless exercise of common stock options
|
|
$
|
7,500
|
|
|
$
|
7,350
|
|
F-18
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
Note 1 Organization and Basis of Presentation
The financial statements presented are those of iGambit Inc., (the Company). The Company was
incorporated under the laws of the State of Delaware on April 13, 2000. The Company was originally
incorporated as Compusations Inc. under the laws of the State of New York on October 2, 1996. The
Company changed its name to BigVault.com Inc. upon changing its state of domicile on April 13,
2000. The Company changed its name again to bigVault Storage Technologies Inc. on December 22,
2000 before changing to iGambit Inc. on July 18, 2006.
Merger Transaction
On December 19, 2005, the Company executed a certificate of merger whereby BigVault Inc. (a Nevada
corporation) merged into the Company leaving the Company as the surviving corporation. Pursuant to
the certificate of merger, each share of Big Vault Inc.s common stock issued and outstanding was
converted to one share of the Companys common stock.
Note 2 Discontinued Operations
Sale of Business
On February 28, 2006, the Company entered into an asset purchase agreement with Digi-Data
Corporation (Digi-Data), whereby Digi-Data acquired the Companys assets and its online digital
vaulting business operations in exchange for $1,500,000, which was deposited into an escrow account
for payment of the Companys outstanding liabilities. In addition, as part of the sales agreement,
the Company receives payments from Digi-Data based on 10% of the net vaulting revenue payable
quarterly over five years. The Company is also entitled to an additional 5% of the increase in net
vaulting revenue over the prior years revenue. These adjustments to the sales price are included
in the discontinued operations line of the statements of income.
The assets and liabilities of the discontinued operations are presented in the balance sheets under
the captions Assets of discontinued operations and Liabilities of discontinued operations. The
underlying assets and liabilities of the discontinued operations as of September 30, 2009 and
December 31, 2008 are as follows:
F-19
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
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|
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|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
580,237
|
|
|
$
|
367,430
|
|
Deferred income taxes
|
|
|
|
|
|
|
279,058
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
150,609
|
|
|
|
165,727
|
|
Deferred income taxes
|
|
|
|
|
|
|
98,750
|
|
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
$
|
730,846
|
|
|
$
|
910,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Prepaid contingency
|
|
$
|
|
|
|
$
|
141,538
|
|
Deferred compensation
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
$
|
|
|
|
$
|
491,538
|
|
|
|
|
|
|
|
|
Accounts Receivable
Accounts receivable includes 50% of contingency payments earned for the previous quarter.
Restricted Cash
An escrow account was established in connection with the sale of business to Digi-Data to hold
funds for contingent liabilities. Under the terms of the sale, 25% of the quarterly contingency
payments are deposited into the escrow account for a period of three years. Also under the terms
of the sale, 50% of the balance of the escrow funds held will be released after three years, and
the remaining balance released after two more years. The escrow account balance was $150,609 and
$165,727 at September 30, 2009 and December 31, 2008, respectively.
Prepaid Contingency
Prepaid contingency includes cash and expenses advanced by Digi-Data prior to the sale. The
balance is being repaid with 25% of quarterly contingency payments earned that is retained by
Digi-Data. The prepaid contingency balance was $0 and $141,538 as of September 30, 2009 and
December 31, 2008, respectively.
F-20
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
Deferred Compensation
The Company was indebted to two former officers for unpaid compensation totaling $350,000 at
December 31, 2008. The officers received advances against the deferred compensation totaling
$198,281 as of December 31, 2008. The Company paid the total balance to the officers, who
subsequently repaid the advances received, during the nine months ended September 30, 2009.
Note 3 Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reporting amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include checking and money market
accounts and any highly liquid debt instruments purchased with a maturity of three months or less.
Revenue Recognition
Contingency payment income is recognized quarterly from a percentage of Digi-Datas vaulting
service revenue, and is included in discontinued operations.
Property and equipment and depreciation
Property and equipment are stated at cost. Depreciation for both financial reporting and income
tax purposes is computed using combinations of the straight line and accelerated methods over the
estimated lives of the respective assets. During the year ended December 31, 2008, the Company
purchased computer equipment totaling $1,864. Computer equipment is depreciated over 5 years.
Maintenance and repairs are charged to expense when incurred. When property and equipment are
retired or otherwise disposed of, the related cost and accumulated depreciation are removed from
the respective accounts and any gain or loss is credited or charged to income.
Depreciation expense of $447 and $280 was charged to operations for the nine ended September 30,
2009 and 2008.
F-21
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
Stock-Based Compensation
As of December 31, 2008, the Company has a stock-based employee compensation plan which it accounts
for applying SFAS No. 123(R) (SFAS 123(R)), Share-Based Payment. Under SFAS 123(R), the Company
is required to select a valuation technique or option-pricing model that meets the criteria as
stated in the standard, which includes a binomial model and the Black-Scholes model. At the present
time, the Company applies the Black-Scholes model. SFAS 123(R) also requires the Company to
estimate forfeitures in calculating the expense relating to stock-based compensation as opposed to
only recognizing these forfeitures and the corresponding reduction in expense as they occur.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the statement of operations in the period that includes the enactment date.
Note 4 Earnings Per Common Share
Earnings per common share is computed based on the weighted average common shares outstanding
during the period. Diluted net income per share is computed using the treasury stock method to
calculate the weighted average number of common shares and, if dilutive, potential common shares
outstanding during the year. Potential dilutive common shares include unvested restricted shares
and the incremental common shares issuable upon the exercise of stock options and warrants. The
following table presents the calculation of the basic earnings per share and the fully diluted
earnings per share:
F-22
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
562,195
|
|
|
$
|
311,228
|
|
|
|
|
|
|
|
|
Determination of shares:
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
22,859,056
|
|
|
|
22,301,379
|
|
Assumed conversion of:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,088
|
|
|
|
4,015
|
|
Warrants
|
|
|
11,300
|
|
|
|
3,960
|
|
|
|
|
|
|
|
|
Diluted average common shares outstanding
|
|
|
22,871,444
|
|
|
|
22,309,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
.02
|
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
Fully diluted income per share
|
|
$
|
.02
|
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
Note 5 Warrants and Stock Option Plan
Warrants
Warrant activity during the nine months ended September 30, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Warrants outstanding at January 1, 2009
|
|
|
835,000
|
|
|
$
|
0.99
|
|
Granted during 2009
|
|
|
2,250,000
|
|
|
|
0.77
|
|
Warrants outstanding at September 30, 2009
|
|
|
3,085,000
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2009, the Company granted a warrant to purchase up to
2,000,000 shares of common stock to its securities firm pursuant to a business advisory agreement,
and granted a warrant to purchase up to 250,000 shares of common stock to a law firm pursuant to an
engagement agreement.
F-23
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
Stock Option Plan
Stock Option Plan activity during the nine months ended September 30, 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Options outstanding and exercisable
at January 1, 2009
|
|
|
1,046,900
|
|
|
$
|
0.01
|
|
Exercised during 2009
|
|
|
750,000
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable
at September 30, 2009
|
|
|
296,900
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life at September 30, 2009, for all options is 6.59 years.
In 2006, the Company adopted the 2006 Long-Term Incentive Plan (the 2006 Plan). The 2006 Plan
provides for the granting of options to purchase up to 5,510,000 shares of common stock. 5,213,100
options have been exercised to date. There are 296,900 options outstanding under the 2006 Plan.
The fair value of each warrant and option is estimated on the date of grant based on the
Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate;
volatility; and expected remaining lives of the awards. The assumptions used in calculating the
fair value of share-based payment awards represent managements best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. In addition, the
Company is required to estimate the expected forfeiture rate and only recognize expense for those
shares expected to vest. In estimating the Companys forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the amount of vested
options as a percentage of total options outstanding.
The fair value of warrants and options granted is estimated on the date of grant based on the
weighted-average assumptions in the table below. The assumption for the expected life is based on
evaluations of historical and expected exercise behavior. The risk-free interest rate is based on
the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the
expected life at the grant date. The historical stock volatility of the Companys common stock is
used as the basis for the volatility assumption.
F-24
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2009
|
|
2008
|
Weighted average risk-free rate
|
|
|
4.23
|
%
|
|
|
4.64
|
%
|
Average expected life in years
|
|
|
5.1
|
|
|
|
5.8
|
|
Expected dividends
|
|
None
|
|
None
|
Volatility
|
|
|
20
|
%
|
|
|
20
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Note 6 Common Stock Issued
During the nine months ended September 30, 2009, options were exercised for 735,000 shares of
common stock, valued at $.01 per share. As of September 30, 2009, there were 296,900 options
outstanding exercisable at various prices.
During the year ended December 31, 2008, warrants were exercised for 135,000 shares of common
stock, valued at $.50 per share, and for 60,000 shares of common stock, valued at $.01 per share.
As of December 31, 2008, there were 835,000 warrants outstanding exercisable at various prices.
Dividends may be paid on outstanding shares as declared by the Board of Directors from time to
time. Each share of common stock is entitled to one vote.
Note 7 Income Taxes
The tax provision at September 30 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(108,580
|
)
|
|
$
|
(31,470
|
)
|
State and local
|
|
|
1,521
|
|
|
|
2,163
|
|
Deferred tax expense:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
384,185
|
|
|
|
187,936
|
|
State and local
|
|
|
102,203
|
|
|
|
49,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
379,329
|
|
|
$
|
208,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense (benefit) attributable to:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(107,059
|
)
|
|
$
|
(29,307
|
)
|
Discontinued operations
|
|
|
486,388
|
|
|
|
237,932
|
|
|
|
|
|
|
|
|
|
|
$
|
379,329
|
|
|
$
|
208,625
|
|
|
|
|
|
|
|
|
F-25
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
The Company recognizes deferred tax assets and liabilities based on the future tax consequences of
events that have been included in the financial statements or tax returns. The differences relate
primarily to net operating loss carryovers and to deferred compensation. Deferred tax assets and
liabilities are calculated based on the difference between the financial reporting and tax bases of
assets and liabilities using the currently enacted tax rates in effect during the years in which
the differences are expected to reverse. Deferred taxes are classified as current or non-current,
depending on the classification of the assets and liabilities to which they relate.
The Companys provision for income taxes differs from applying the statutory U.S. federal income
tax rate to income before income taxes. The primary differences result from providing for state
income taxes and from deducting certain expenses for financial statement purposes but not for
federal income tax purposes.
In accordance with Statement of Financial Accounting Standards (FAS) No. 109, Accounting for
Income Taxes (FAS 109), a valuation allowance is established based on the future recoverability
of deferred tax assets. This assessment is based upon consideration of available positive and
negative evidence, which includes, among other things, the Companys most recent results of
operations and expected future profitability. Management has determined that no valuation
allowance related to deferred tax assets is necessary at September 30, 2009 and December 31, 2008.
The deferred tax assets included in assets from discontinued operations in the accompanying balance
sheets includes the following at September 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
|
|
|
$
|
279,058
|
|
Non-current:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
98,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
377,808
|
|
|
$
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377,808
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In June 2006, the FASB issued Interpretation No. 48 (FIN 48) Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 (SFAS 109). This interpretation clarifies
the accounting for uncertainty in income taxes recognized in a companys financial statements in
accordance with SFAS 109, Accounting for Income Taxes. FIN 48 details how companies should
recognize, measure, present, and disclose uncertain tax positions that have been or are expected to
F-26
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
be taken. As such, financial statements will reflect expected future tax consequences of uncertain
tax positions presuming the taxing authorities full knowledge of the position and all relevant
facts. FIN 48 will not have a material impact on the financial statements of the Company.
Note 8 Risks and Uncertainties
Contingency Payment Income Discontinued Operations
The discontinued operations of contingency payments received from Digi-Data is the Companys sole
source of income. Should Digi-Data not achieve sufficient vaulting revenue or continue to exist,
substantial doubt would be raised as to the Companys ability to continue to exist, as the Company
has no other source of revenue.
Uninsured Cash Balances
Substantially all amounts of cash accounts held at financial institutions are insured by the FDIC.
Note 9 Related Party Transactions
Notes Receivable Stockholders
The Company provided loans to a stockholder totaling $17,000 at September 30, 2009 and December 31,
2008. The loans bear interest at a rate of 6% and are due on December 31, 2009.
Accrued interest on the note was $763 and $449 for the nine months ended September 30, 2009 and
2008, respectively.
The Company provided advances to two stockholders and former officers totaling $198,281 and $79,281
as of December 31, 2008, against their respective deferred compensation balances. The advances to
the stockholders were collateralized with their common shares issued and outstanding of 5,470,000
shares each. The former officers repaid the advances to the Company during the nine months ended
September 30, 2009.
F-27
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
Lease Commitment
The Company entered into an operating lease for office space for a term of 12 months effective June
1, 2009. Monthly rent under the lease is $2,600.
Rent expense of $7,800 was charged to operations for the nine months ended September 30, 2009.
Note 10 Commitments and Contingencies
The Company provides accruals for all direct costs associated with the estimated resolution of
contingencies at the earliest date at which it is deemed probable that a liability has been
incurred and the amount of such liability can be reasonably estimated.
Note 11 Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 168 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles. This Statement establishes the FASB
Accounting Standards Codification, (Codification) as the single source of authoritative GAAP to
be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC
under authority of federal securities laws, which are sources of authoritative GAAP for SEC
registrants. All guidance contained in the Codification carries an equal level of authority. The
Company is required to adopt this standard in the first quarter of fiscal year 2010.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165), which establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. The Company is
required to adopt SFAS 165 prospectively to both interim and annual financial periods ending after
June 15, 2009. The adoption of the standard is not expected to result in a change in current
practice.
In April 2009, three FASB Staff Positions (FSPs) were issued addressing fair value of financial
instruments: FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly;
FSP FAS 115-2, Recognition and Presentation of Other Than Temporary Impairments; and FSP FAS
107-1,Interim Disclosure about Fair Value of Financial Instruments. The Company will adopt these
FSPs in its fourth quarter of fiscal year 2009. The adoption of these FSPs is not expected to have
a material impact on the Companys financial condition and results of operations.
F-28
IGAMBIT INC.
Notes to Financial Statements
September 30, 2009 and 2008
Note 12 Subsequent Events
Acquisition of Business
Effective October 1, 2009, the Company acquired Gotham Innovation Lab Inc. (Gotham) in exchange
for 500,000 shares of the Companys common stock. Subsequently, Gotham acquired substantially all
of the assets of Jekyll Island Ventures Inc. doing business as Gotham Photo Company (Jekyll) in
exchange for 500,000 its shares of common stock in the Company, and for 1,500,000 options to
purchase the Companys common stock over a three year period conditioned upon Gotham achieving
revenue goals.
F-29
Exhibit 10.1
iGambit Inc.
2006 LONG-TERM INCENTIVE PLAN
AMENDED December 31, 2006
1.
Definitions
. In this Plan, except where the context otherwise indicates, the
following definitions shall apply:
1.1. Agreement means a written agreement evidencing an Award.
1.2. Award means a grant of an Option, Right or Performance Award or an award of Restricted
Shares or Incentive Shares.
1.3. Board means the Board of Directors of the Company.
1.4. Code means the Internal Revenue Code of 1986, as amended.
1.5. Committee means a committee or subcommittee of the Board appointed by the Board to
administer this Plan and programs hereunder. The Committee may, in its discretion, appoint a
subcommittee to administer the Plan with respect to specific Awards hereunder. If no such
appointment is in effect at any time, Committee shall mean the Board.
1.6. Common Stock means the common stock, par value $0.01 per share, of the Company.
1.7 Company means iGambit Inc.
1.8. Date of Exercise means the date on which the Company receives notice of the exercise of
an Option in accordance with the terms of Section 8.1.
1.9. Date of Grant means the date on which an Option, Right or Performance Award is granted
or Restricted Shares or Incentive Shares are awarded under this Plan.
1.10. Director means a member of the Board of Directors of the Company or any Subsidiary.
1.11. Employee means any person determined by the Committee to be an employee of the Company
or a Subsidiary, including an Employee Director, consultant or any person who has been hired to be
an employee or consultant of the Company or a Subsidiary.
1.12. Employee Director means a Director who is also an Employee.
1.13. Exchange Act means the Securities Exchange Act of 1934, as amended.
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1.14. Fair Market Value means an amount equal to the then fair market value of a Share as
determined by the Committee pursuant to a reasonable method adopted in good faith for such purpose,
or, unless otherwise determined by the Committee, if the Shares become traded on a securities
exchange or automated dealer quotation system, fair market value shall be the last sale price for a
Share on such securities exchange or automated dealer quotation system as reported by such source
as the Committee may select.
1.15. Incentive Shares means an award providing for the contingent grant of Shares pursuant
to the provisions of Section 10.
1.16. Incentive Stock Option means an Option granted under this Plan that the Company
designates as an incentive stock option under Section 422 of the Code in the Agreement granting the
Option.
1.17. Nonstatutory Stock Option means an Option granted under this Plan that is not an
Incentive Stock Option.
1.18. Option means an option to purchase Shares granted under this Plan in accordance with
the terms of Section 6.
1.19. Option Period means the period during which an Option may be exercised.
1.20. Option Price means the price per Share at which an Option may be exercised. Subject
to the terms of the Plan, the Option Price shall be determined by the Committee; provided, however,
that in no event shall the Option Price be less than the par value of the each Share.
1.21. Participant means a Director, Employee, Employee Director, and Individual to whom an
Award has been granted under this Plan. Awards may be granted only to Employees, members of the
Board of directors, individuals who render services to the Company.
1.22. Performance Award means a performance award granted under the Plan in accordance with
the terms of Section 11.
1.23. Performance Goals means performance goals established by the Committee which may be
based on earnings or earnings growth, sales, return on assets, cash flow, total shareholder return,
equity or investment, regulatory compliance, satisfactory internal or external audits, improvement
of financial ratings, achievement of balance sheet or income statement objectives, or any other
goals established by the Committee, and may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated. Such performance
standards may be particular to an employee or the department, branch, Subsidiary or other division
in which he or she works, or may be based on the performance of the Company generally, and may
cover such period as may be specified by the Committee.
1.24. Plan means the iGambit Inc. 2006 Long-Term Incentive Plan, as amended from time to
time.
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1.25. Related Option means the Option in connection with which, or by amendment to which, a
specified Right is granted.
1.26. Related Right means the Right granted in connection with, or by amendment to, a
specified Option.
1.27. Restricted Shares means Shares awarded under the Plan pursuant to the provisions of
Section 9.
1.28. Right means a stock appreciation right granted under the Plan in accordance with the
terms of Section 7.
1.29. Right Period means the period during which a Right may be exercised.
1.30. Share means one share of Common Stock.
1.31. Subsidiary means a corporation at least 50% of the total combined voting power of all
classes of stock of which is owned by the Company, either directly or through one or more other
Subsidiaries.
1.32. Ten-Percent Shareholder means a Participant who (applying the rules of Section 424(d)
of the Code) owns shares possessing more than 10% of the total combined voting power of all classes
of shares of the Company or a Subsidiary.
2.
Purpose
. This Plan is intended to assist the Company and its Subsidiaries in
attracting and retaining Directors, Employees, Employee Directors and other Individuals of
outstanding ability and to promote the identification of their interests with those of the
shareholders of the Company.
3.
Administration
. The Committee shall administer this Plan and shall have plenary
authority, in its discretion, to award Options, Rights, Restricted Shares, Incentive Shares and
Performance Awards to Directors, Employees and Employee Directors, subject to the provisions of
this Plan. The Committee shall have plenary authority and discretion, subject to the provisions of
this Plan, to determine the Directors, Employees or Employee Directors to whom Options, Rights or
Performance Awards shall be granted and to whom Restricted Shares or Incentive Shares shall be
awarded, the terms (which terms need not be identical) of all Awards to Directors, Employees and
Employee Directors, including without limitation the Option Price of Options, the time or times at
which Awards are made, the number of Shares covered by Awards, whether an Option shall be an
Incentive Stock Option or a Nonstatutory Stock Option, any exceptions to non-transferability, any
Performance Goals applicable to Awards, any provisions relating to vesting, any circumstances in
which the Options would terminate, the period during which Options and Rights may be exercised, and
the period during which Restricted Shares shall be subject to restrictions. In making these
determinations, the Committee may take into account the nature of the services rendered or to be
rendered by the Award recipients, their present and potential contributions to the success of the
Company and its Subsidiaries, and such other factors as the Committee in its discretion shall deem
relevant. Subject to the provisions of this Plan, the Committee shall have plenary authority to
interpret this Plan, prescribe, amend and rescind rules and regulations relating to it, and make
all
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other determinations deemed necessary or advisable for the administration of this Plan. The
determinations of the Committee on the matters referred to in this Section 3 shall be binding and
final.
4.
Eligibility
. Options, Rights, Restricted Shares, Incentive Shares and Performance
Awards may be granted or awarded only to Employees, Directors and Individuals, provided, however,
that Individuals and Directors, other than Employee Directors, may not be granted Incentive Stock
Options. A Director, Employee, Employee Director or Individual who has been granted an Option,
Right or Performance Award or awarded Restricted Shares or Incentive Shares may be granted
additional Options, Rights or Performance Awards or awarded additional Shares of Restricted Shares
or Incentive Shares.
5.
Stock Subject to Plan
.
5.1. Subject to adjustment as provided in Section 12, the maximum number of Shares that may be
issued under this Plan is 10,000,000 Shares plus an annual increase, effective as of the first day
of each calendar year, commencing with 2006, equal to 10% of the number of outstanding Shares as of
the first day of such calendar year, but in no event more than 15,000,000 Shares in the aggregate.
Such Shares may be authorized but unissued Shares, Shares held in the treasury, or both. The full
number of Shares available may be used for any type of Option or other Benefit.
5.2. If an Option or Right expires or terminates for any reason (other than termination by
virtue of the exercise of a Related Option or Related Right, as the case may be) without having
been fully exercised, if Shares of Restricted Shares are forfeited or if Shares covered by an
Incentive Share Award or Performance Award are not issued or are forfeited, the unissued or
forfeited Shares which had been subject to the Award shall become available for the grant of
additional Awards.
5.3. Upon exercise of a Right (regardless of whether the Right is settled in cash or Shares),
the number of Shares with respect to which the Right is exercised shall be charged against the
number of Shares issuable under the Plan and shall not become available for the grant of other
Awards.
6.
Options
.
6.1. Options granted under this Plan to Employees shall be either Incentive Stock Options or
Nonstatutory Stock Options, as designated by the Committee. Each Option granted under this Plan
shall be clearly identified either as a Nonstatutory Stock Option or an Incentive Stock Option and
shall be evidenced by an Agreement that specifies the terms and conditions of the grant. If not
otherwise designated or specified by the Committee or identified in the Agreement, such Options
shall be deemed to be Nonstatutory Stock Options. Options shall be subject to the terms and
conditions set forth in this Section 6 and such other terms and conditions not inconsistent with
this Plan as the Committee may specify.
6.2. The price per Share at which an Incentive Stock Option granted under this Plan may be
exercised shall not be less than one hundred percent (100%) of the Fair Market Value of the
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Shares on the Date of Grant. Notwithstanding the foregoing, in the case of an Incentive Stock
Option granted to a Participant who is a Ten-Percent Shareholder, the exercise price per Share
shall not be less than one hundred and ten percent (110%) of the Fair Market Value of the Shares on
the Date of Grant.
6.3. The Option Period shall be determined by the Committee and specifically set forth in the
Agreement; provided, however, that an Option shall not be exercisable after ten years (five years
in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) from its Date of
Grant.
6.4. The Committee, in its discretion, may provide in an Agreement for the right of the
Participant to surrender to the Company an Option (or a portion thereof) that has become
exercisable and to receive upon such surrender, without any payment to the Company (other than
required tax withholding amounts) that number of Shares (equal to the highest whole number of
Shares) having an aggregate fair market value as of the date of surrender equal to that number of
Shares subject to the Option (or portion thereof) being surrendered multiplied by an amount equal
to the excess of (a) the Fair Market Value on the date of surrender over (b) the Option Price, plus
an amount of cash equal to the fair market value of any fractional Share to which the Participant
would be entitled but for the parenthetical above relating to whole number of Shares. Any such
surrender shall be treated as the exercise of the Option (or portion thereof).
7.
Rights
.
7.1. Rights granted under the Plan shall be evidenced by an Agreement specifying the terms and
conditions of the grant.
7.2. A Right may be granted under the Plan:
(a) in connection with, and at the same time as, the grant of an Option under the Plan;
(b) by amendment of an outstanding Option granted under the Plan; or
(c) independently of any Option granted under the Plan.
7.3. A Right granted under Section 7.2(a) or Section 7.2(b) of this Plan is a Related Right.
A Related Right may, in the Committees discretion, apply to all or any portion of the Shares
subject to the Related Option.
7.4. A Right may be exercised in whole or in part as provided in the applicable Agreement,
and, subject to the terms of the Agreement, entitles a Participant to receive, without payment to
the Company (but subject to required tax withholding), either cash or that number of Shares (equal
to the highest whole number of Shares), or a combination thereof, in an amount or having a fair
market value determined as of the Date of Exercise not to exceed the number of Shares subject to
the portion of the Right exercised multiplied by an amount equal to the excess of (a) the Fair
Market Value on the Date of Exercise of the Right over (b) either (i) the Fair Market Value on
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the Date of Grant of the Right if it is not a Related Right (or such amount in excess of such Fair
Market Value as may be specified by the Committee), or (ii) the Option Price as provided in the
Related Option if the Right is a Related Right.
7.5. The Right Period shall be determined by the Committee and specifically set forth in the
Agreement, subject to the following conditions:
(a) a Right will expire no later than the earlier of (i) ten years from the Date of Grant, or
(ii) in the case of a Related Right, the expiration of the Related Option;
(b) a Right may be exercised only when the Fair Market Value on the Date of Exercise exceeds
either (a) the Fair Market Value on the Date of Grant of the Right if it is not a Related Right (or
such amount in excess of such Fair Market Value as may be specified by the Committee), or (b) the
Option Price of the Related Option if the Right is a Related Right; and
(c) a Right that is a Related Right to an Incentive Stock Option may be exercised only when
and to the extent the Related Option is exercisable.
7.6. The exercise, in whole or in part, of a Related Right shall cause a reduction in the
number of Shares subject to the Related Option equal to the number of Shares with respect to which
the Related Right is exercised. Similarly, the exercise, in whole or in part, of a Related Option
shall cause a reduction in the number of Shares subject to the Related Right equal to the number of
Shares with respect to which the Related Option is exercised.
8.
Exercise of Options and Rights
.
8.1. An Option or Right may, subject to the terms of the applicable Agreement under which it
was granted, be exercised in whole or in part by the delivery to the Company of written notice of
the exercise, in such form as the Committee may prescribe, accompanied, in the case of an Option,
by (a) a full payment for the Shares with respect to which the Option is exercised or (b)
irrevocable instructions to a broker to deliver promptly to the Company cash equal to the exercise
price of the Option. To the extent provided in the applicable Option Agreement, payment may be
made in whole or in part by delivery (including constructive delivery) of Shares valued at Fair
Market Value on the Date of Exercise or by delivery of a promissory note as provided in Section 8.2
hereof.
8.2. To the extent provided in an Agreement and permitted by applicable law, the Committee may
accept as partial payment of the Option Price a promissory note executed by the Participant
evidencing his or her obligation to make future cash payment thereof. Promissory notes made
pursuant to this Section 8.2 shall be payable upon such terms as may be determined by the
Committee, shall be secured by a pledge of the Shares received upon exercise of the Option, or
other securities the Committee may deem to be acceptable for such purposes, and shall bear interest
at a rate fixed by the Committee.
8.3. Options and Rights granted under this Plan shall not be transferable except by will, the
laws of descent and distribution, or as provided by the Committee in an Agreement.
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9.
Restricted Share Awards
.
9.1. Restricted Share awards under this Plan shall consist of Shares that are restricted
against transfer, subject to forfeiture, and subject to such other terms and conditions as may be
determined by the Committee. Such terms and conditions may provide, in the discretion of the
Committee, for the lapse of forfeiture and transfer restrictions to be contingent upon the
achievement of one or more specified Performance Goals.
9.2. Restricted Share awards under this Plan shall be evidenced by Agreements specifying the
terms and conditions of the Award. Each Agreement evidencing an Award of Restricted Shares shall
contain the following:
(a) prohibitions against the sale, assignment, transfer, exchange, pledge, hypothecation, or
other encumbrance of (i) the Shares awarded as Restricted Shares under this Plan, (ii) the right to
vote the Shares, and (iii) the right to receive dividends thereon, in each case during the
restriction period applicable to the Shares; provided, however, that the Participant shall have all
the other rights of a shareholder including without limitation the right to receive dividends and
the right to vote the Shares;
(b) a requirement that each certificate representing Shares of Restricted Shares shall be
deposited with the Company, or its designee, and shall bear the following legend:
This certificate and the Shares represented hereby are subject
to the terms and conditions (including the risks of forfeiture
and restrictions against transfer) contained in iGambit Inc. 2006
Long-Term Incentive Plan and an Agreement entered into between
the registered owner and iGambit Inc. or one of its affiliates.
Release from such terms and conditions shall be made only in
accordance with the provisions of this Plan and the Agreement, a
copy of each of which is on file in the office of the Secretary
of iGambit Inc.; and
(c) the terms and conditions upon which any restrictions applicable to Shares of Restricted
Shares shall lapse and new certificates free of the foregoing legend shall be issued to the
Participant or his or her legal representative.
9.3. The Committee may include in any Agreement awarding Restricted Shares a requirement that,
in the event of a Participants termination of employment for any reason prior to the lapse of
restrictions, all Shares of Restricted Shares shall be forfeited by the Participant to the Company
without payment of any consideration by the Company and neither the Participant nor any successors,
heirs, assigns or personal representatives of the Participant shall thereafter have any further
rights or interest in the Shares or certificates.
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10.
Incentive Share Awards
. Incentive Shares awarded under this Plan shall be
evidenced by an Agreement specifying the terms and conditions of such Award. Incentive Share
Awards shall provide for the issuance of Shares to a Participant at such times and subject to such
terms and conditions as the Committee shall deem appropriate, including without limitation terms
that condition the issuance of Shares upon the achievement of Performance Goals.
11.
Performance Awards
. Performance Awards granted under this Plan shall be evidenced
by an Agreement specifying the terms and conditions of such Award. Performance Awards shall become
payable on account of attainment of one or more Performance Goals established by the Committee.
Performance Awards may be paid by the delivery of Shares or cash, or any combination of Shares and
cash, as specified in the Agreement. If a Performance Award is paid in cash, the Award shall be
deemed, for purposes of Section 5.1 hereof, to cover a number of Shares equal to the quotient
obtained by dividing the dollar amount of the Award payment by the Fair Market Value of a Share as
of the date of payment, rounded to the next highest whole number.
12.
Capital Adjustments
. In the event of any change in the outstanding number of
Shares by reason of any stock dividend, split-up, recapitalization, reclassification, combination
or exchange of shares, merger, consolidation or liquidation and the like, the Committee may, in its
discretion, provide for a substitution for or adjustment in (a) the number and class of Shares
subject to outstanding Options, Rights and Awards of Restricted Shares, Incentive Shares or
Performance Awards, (b) the Option Price of Options and the base price upon which payments under
Rights that are not Related Rights are determined, and (c) the aggregate number and class of Shares
for which Awards thereafter may be made under this Plan.
13.
Termination or Amendment
. The Board may amend, alter or terminate this Plan in
any respect at any time; provided, however, that, after this Plan has been approved by the
shareholders of the Company, no amendment, alteration or termination of this Plan shall be made by
the Board without approval of (a) the Companys shareholders to the extent shareholder approval of
the amendment is required by applicable law or regulations or the requirements of the principal
exchange or interdealer quotation system on which the Shares are listed or quoted, if any, and (b)
each affected Participant if such amendment, alteration or termination would adversely affect his
or her rights or obligations under any Award made prior to the date of such amendment, alteration
or termination.
14.
Modification, Extension, Renewal, Substitution
.
14.1. Subject to the terms and conditions of this Plan, the Committee may modify, extend or
renew outstanding Options and Rights, or accept the surrender of outstanding Options and Rights
granted under this Plan or options and stock appreciation rights granted under any other plan of
the Company or a Subsidiary (to the extent not theretofore exercised), and authorize the granting
of new Options and Rights pursuant to this Plan in substitution therefor. Any substituted Options
or Rights may specify a lower exercise price than the surrendered options and stock appreciation
rights, a longer term than the surrendered options and stock appreciation rights, or have any other
provisions that are authorized by this Plan. Subject to the terms and conditions of this Plan, the
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Committee may modify the terms of any outstanding Awards. Notwithstanding the foregoing, however,
no modification of an Award shall, without the consent of the Participant, alter or impair any of
the Participants rights or obligations under such Award.
14.2. Anything contained herein to the contrary notwithstanding, Awards may, at the discretion
of the Committee, be granted under this Plan in substitution for options and such other awards
covering capital stock of another corporation (a) which is merged into, consolidated with, or all
or a substantial portion of the property or stock of which is acquired by, the Company or one of
its Subsidiaries or (b) which acquires, directly or indirectly, all or a substantial portion of the
property or Shares of the Company. The terms and conditions of the substitute Awards so granted
may vary from the terms and conditions set forth in this Plan to such extent as the Committee may
deem appropriate in order to conform, in whole or part, to the provisions of the awards in
substitution for which they are granted.
15.
Effectiveness of this Plan
. This Plan and any amendments hereto requiring
shareholder approval pursuant to Section 13 are subject to approval by vote of the shareholders of
the Company following adoption by the Board. Subject to such shareholder approval, this Plan and
any amendments hereto shall be effective as of the date specified by the Board.
16.
Withholding
. The Companys obligation to deliver Shares or pay any amount
pursuant to the terms of any Award hereunder shall be subject to satisfaction of applicable
federal, state and local tax withholding requirements. To the extent provided in the applicable
Agreement and in accordance with rules prescribed by the Committee, a Participant may satisfy any
such withholding tax obligation by any of the following means or by a combination of such means:
(a) tendering a cash payment, (b) authorizing the Company to withhold Shares otherwise issuable to
the Participant, or (c) delivering to the Company already-owned and unencumbered Shares.
17.
Term of this Plan
. Unless sooner terminated by the Board pursuant to Section 13,
this Plan shall terminate on December 1, 2009, and no Awards may be granted or awarded after such
date. The termination of this Plan shall not affect the validity of any Award outstanding on the
date of termination.
18.
Indemnification of Committee
. In addition to such other rights of indemnification
as they may have as Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against all reasonable expenses, including attorneys fees, actually and
reasonably incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with this Plan or any Option, Right,
Restricted Shares, Incentive Shares or Performance Awards granted or awarded hereunder, and against
all amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, if such members acted in good faith and in a
manner which they believed to be in, and not opposed to, the best interests of the Company.
19.
General Provisions
.
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19.1. The establishment of this Plan shall not confer upon any Director, Employee or Employee
Director any legal or equitable right against the Company, any Subsidiary or the Committee, except
as expressly provided in this Plan.
19.2. This Plan does not constitute inducement or consideration for the employment of any
Employee or the service of any Director or Employee Director, nor is it a contract between the
Company or any Subsidiary and any Director, Employee or Employee Director. Participation in this
Plan shall not give a Director, Employee or Employee Director any right to be retained in the
service of the Company or any Subsidiary.
19.3. Neither the adoption of this Plan nor its submission to the Shareholders shall not be
taken to impose any limitations on the powers of the Company or its Subsidiaries to issue, grant,
or assume options, warrants, rights, restricted shares, or other awards otherwise than under this
Plan, or to adopt other stock option, restricted shares or other plans or to impose any requirement
of shareholder approval upon the same.
19.4. The interests of any Director, Employee or Employee Director under this Plan are not
subject to the claims of creditors and may not, in any way, be assigned, alienated or encumbered
except as provided in an Agreement.
19.5. This Plan shall be governed, construed and administered in accordance with the laws of
the State of New York.
19.6. The Committee may require each person acquiring Shares pursuant to Awards hereunder to
represent to and agree with the Company in writing as to restrictions on transfer of the Shares and
that such person is acquiring the Shares without a view to distribution thereof. The certificates
for such Shares may include any legend that the Committee deems appropriate to reflect any
restrictions on transfer. All certificates for Shares issued pursuant to this Plan shall be
subject to such stock transfer orders and other restrictions as the Committee may deem advisable
under any applicable laws, rules and regulations, any stock exchange upon which the Shares are then
listed or interdealer quotation system upon which the Shares are then quoted, and any applicable
United States federal or state securities laws. The Committee may place a legend or legends on any
such certificates to make appropriate reference to such restrictions.
19.7. The Company shall not be required to issue any certificate or certificates for Shares
with respect to Awards under this Plan, or record any person as a holder of record of such Shares,
without obtaining, to the complete satisfaction of the Committee, the approval of all regulatory
bodies deemed necessary by the Committee, and without complying to the Boards or Committees
complete satisfaction, with all rules and regulations, under United States federal, state or local
law deemed applicable by the Committee.
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Exhibit 10.2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (
Agreement
), dated as of December 21, 2005, is by and among
bigVAULT STORAGE TECHNOLOGIES, INC., a Delaware corporation (
BVST
), and BIG VAULT, INC., a Nevada
corporation (
BVI
and, together with BVST, collectively, the
Seller
), and JOHN SALERNO (
John
)
and ELISA SALERNO (
Elisa
and, together with John, the
Shareholders
), and DIGI-DATA CORPORATION,
a Maryland corporation (
Purchaser
).
WITNESSETH
:
Seller is in the business of providing remote, internet-based storage vaulting services to end
users and resellers, and related ancillary services (the
Vault Business
).
The parties hereto wish to enter into this Agreement which sets forth the terms and conditions
upon which Purchaser agrees to purchase from the Seller and the Seller agrees to sell to Purchaser,
for the consideration stated herein, all of the assets of the Seller (other than to the extent
specifically set forth herein) free and clear of all liens, liabilities and encumbrances.
In consideration of the foregoing and of the covenants, agreements, conditions,
representations and warranties hereinafter contained, and intending to be legally bound hereby,
Purchaser, the Seller and the Shareholders hereby agree as follows:
1. DEFINITIONS.
Unless otherwise defined below in this Section 1, the various capitalized terms used in this
Agreement shall have the definitions ascribed to them herein. As used in this Agreement, the
following terms shall have the meanings specified in this Section 1:
Accounts Receivable
means: (1) all trade accounts receivable and other rights to payment
from customers of the Seller and the full benefit of all security for such accounts or rights to
payment, including all trade accounts receivable representing amounts receivable in respect of
services rendered to customers of the Seller; (2) all other accounts or notes receivable of the
Seller and the full benefit of all security for such accounts or notes; and (3) any Claim, remedy
or other right related to any of the foregoing.
Agreed Liabilities Amount
means
$
1,500,000.
Assigned Contracts
means all of the Contracts except for the Excluded Contracts.
Claim
means an action, suit, proceeding, demand, claim or counterclaim or legal,
administrative or arbitral proceeding or investigation.
Contract
means all agreements, whether oral or written and whether express or implied
(whether legally binding or not), including contracts, contract rights, promises, commitments,
undertakings, customer accounts, orders, leases, guarantees, warranties and representations and
franchises to which either Seller is a party.
Copyrights
shall mean all copyrights (whether or not registered), moral rights, and all
registrations and applications for registration thereof, as well as rights to renew copyrights.
Creditors
means those parties to which either Seller owes any one or more of the liabilities
included in the Agreed Liabilities Amount, as set forth on
Schedule 2.2(b)(2)
.
Excluded Contracts
shall mean the Contracts not to be assigned by Seller pursuant to this
Agreement, as set forth on
Schedule 3.22
.
Governmental Authorities
means all agencies, authorities, bodies, boards, commissions,
courts, instrumentalities, legislatures and offices of any nature whatsoever of any government,
quasi-governmental unit or political subdivision, whether foreign, federal, state, county,
district, municipality, city or otherwise.
Intellectual Property
shall mean all (i) Patents, (ii) Know-how, (iii) Trademarks, (iv)
Copyrights, (v) Software Programs (including but not limited to off-the-shelf shrink-wrap and
click-wrap Software Programs), in each case that are licensed by Seller and/or otherwise used in
the Vault Business as currently operated, and (vi) all other intellectual property rights and
industrial property rights (of every kind and nature throughout the universe and however
designated), whether arising by operation of law, contract, license or otherwise.
Intellectual Property Rights
means, collectively, any and all known or hereafter known
tangible and intangible rights under patent, trademark, copyright and trade secret laws, and any
other intellectual property, industrial property and proprietary rights worldwide, of every kind
and nature throughout the universe, however designated, whether arising by operation of law,
contract, license or otherwise.
Key Seller Employees
means the following employees of Seller: John Salerno, Elisa Salerno
and Mehul Mehta.
Know-how
shall mean any and all product specifications, processes, methods, product designs,
plans, trade secrets, ideas, concepts, inventions, manufacturing, engineering and other manuals and
drawings, physical and analytical, safety, quality control, technical information, data, research
records, all promotional literature, customer and supplier lists and similar data and information,
and any and all other confidential or proprietary technical and business information which are
licensed to or owned by Seller and/or otherwise used in the Vault Business as currently operated.
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Liability
means any direct or indirect indebtedness, liability, assessment, expense, claim,
loss, damage, deficiency, obligation or responsibility, known or unknown, disputed or undisputed,
joint or several, vested or unvested, executory or not, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, determinable or undeterminable, accrued or
unaccrued, absolute or not, actual or potential, contingent or otherwise (including but not limited
to any liability under any guarantees, letters of credit, performance credits or with respect to
insurance loss accruals).
License Agreement
shall have the meaning set forth in Section 11.4.
Moral Rights
means, collectively, rights to claim authorship of a work, to object to or
prevent any modification of a work, to withdraw from circulation or control the publication or
distribution of a work, and any similar rights, whether existing under judicial or statutory law of
any country or jurisdiction worldwide, or under any treaty or similar legal authority, regardless
of whether such right is called or generally referred to as a moral right.
Patents
shall mean all patents, patent disclosures and patent applications (including,
without limitation, all reissues, divisions, continuations, continuations-in-part, renewals,
re-examinations and extensions of the foregoing) owned by Seller and/or otherwise used in the Vault
Business as currently operated.
Person
means any individual, corporation, joint venture, partnership, limited partnership,
limited liability company, limited liability partnership, syndicate, trust, association, entity or
government or political subdivision, agency or instrumentality of a government.
Software Programs
shall have the meaning set forth in
Section 3.21(f)
.
Tangible Personal Property
means all machinery, equipment, tools, furniture, fixtures and
equipment, computer hardware, supplies, materials, leasehold improvements, automobiles, computing
and telecommunications equipment and other items of tangible personal property, of every kind owned
or leased by the Seller and/or otherwise used in the Vault Business (wherever located and whether
or not carried on the books of the Seller), together with any express or implied warranty by the
manufacturers or sellers or lessors of any item or component part thereof, and all maintenance
records and other documents relating thereto.
Taxes
means: (1) any and all taxes, fees, levies, duties, tariffs, imposts and other
charges of any kind, imposed by any Governmental Authority or taxing authority, including taxes or
other charges on, measured by, or with respect to income, franchise, windfall or other profits,
gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers
compensation, unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration
and documentation fees; and customers duties, tariffs and similar charges; (2) any Liability for
the payment of any amounts of the type described in (1) as a result of being a member of an
affiliated, combined, consolidated or unitary group for any taxable period; (3) any
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Liability
for the payment of amounts of the type described in (1) or (2) as a result of being a transferee
of, or a successor in interest to, any Person or as a result of an express or implied obligation to
indemnify any Person; and (4) any and all interest, penalties, additions to tax and additional
amounts imposed in connection with or with respect to any amounts described in (1), (2) or (3).
Tax Return
means any return, report, statement, form or other documentation (including any
additional or supporting material and any amendments or supplements) filed or maintained, or
required to be filed or maintained, with respect to or in connection with the calculation,
determination, assessment or collection of any Taxes.
Trademarks
shall mean (i) trademarks, service marks, trade names, trade dress, labels, logos
and all other names and slogans used exclusively with any products or embodying associated goodwill
of the Vault Business related to such products, whether or not registered, and any applications or
registrations therefor, and (ii) any associated goodwill incident thereto, in each case owned by or
licensed to Seller and/or otherwise used in the Vault Business as currently operated.
Vault Net Revenues
shall mean the gross revenue of the Purchaser actually received by the
Purchaser that is solely and directly attributable to the Vault Business, to the extent that such
revenue is derived from the provision of vault services and/or vault appliances which use the Big
Vault core technology, less the sum of (i) any discount given by Purchaser in compensation for
early payment, (ii) returns, allowances, quantity discounts and credits, (iii) any accounting
reserve amount, as determined in accordance with GAAP, and (iv) shipping and mailing costs, duties,
taxes and insurance.
2. PURCHASE AND SALE OF ASSETS.
2.1
Assets Included
.
On the terms and subject to the conditions set forth in this Agreement, and in reliance upon
the covenants, representations and warranties of the Seller and the Shareholders, at the Closing
(as defined in
Section 2.3
hereof), Purchaser shall purchase from the Seller, and the
Seller shall sell, assign, transfer and deliver to Purchaser, free and clear of any and all
Liabilities, pledges, liens, obligations, claims, charges, tenancies, security interests,
exceptions or encumbrances whatsoever (collectively,
Liens
), all assets, rights and properties of
the Seller, of every nature, kind and description whatsoever, tangible and intangible, wherever
located and as they exist on the date hereof, other than the assets set forth on
Schedule
2.1
and identified thereon as
Excluded Assets
(collectively, the
Assets
). The parties
hereto acknowledge and agree that
Schedule 2.
1 identifies cash and Accounts Receivable as
Excluded Assets, but as to Accounts Receivable, only to the extent that all goods or services to be
provided with respect thereto have already been provided in full, and Seller hereby represents and
warrants such to be the case with respect to all Accounts Receivable set forth on Schedule 2.1.
The Assets are more
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fully set forth on
Schedule 2.1
of the disclosure schedules attached hereto and
include (but are not limited to) the following:
(a) All Tangible Personal Property;
(b) All Accounts Receivable;
(c) All of the Assigned Contracts;
(d) All permits relating to the acquisition or ownership of the Assets or the operation of the
Vault Business;
(e) All data, records, files, manuals, blueprints and other documentation related to the
Seller, the Assets and the operation of the Vault Business, including but not limited to (1)
service and warranty records; (2) sales promotion materials, creative materials, art work,
photographs, public relations and advertising materials, studies, reports, correspondence and other
similar documents and records used in the Vault Business, whether in electronic form or otherwise;
(3) all client and customer lists, telephone numbers and electronic mail addresses with respect to
past, present or prospective clients and customers; (4) all accounting and tax books, ledgers and
records and other financial records relating to the Vault Business and the Assets; (5) all sales
and credit records and brochures relating to the Vault Business, purchasing records and records
relating to suppliers; and (6) subject to applicable Law, copies of all personnel records of all
Seller employees, including the Key Seller Employees.
(f) All of the Sellers furniture and fixtures, as set forth on
Schedule 2.1.2(f)
hereto (the
Furniture and Fixtures
);
(g) All of the Sellers tools and equipment, as set forth on
Schedules 2.1.2(g)
hereto
(the
Equipment
);
(h) All of the inventory, merchandise, stores of supplies, spare parts, stock-in-trade and
work in progress, including, without limitation, the items set forth on the Inventory Statement
attached hereto as
Schedule 2.1.2(h)
;
(i) All Intellectual Property owned, developed or used in connection with the Assets or the
Vault Business;
(j) All policies and procedures, methods of delivery of services, trade secrets, disks,
drawings and specifications, market studies, consultants reports, prototypes, and all similar
property of any nature, tangible or intangible, used in connection with the Vault Business;
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(k) All goodwill incident to the Vault Business, including the value of the names associated
with the Vault Business that are transferred to Purchaser hereunder and the value of good customer
relations;
(l) All computers, Software Programs, automation systems, accounting systems, master disks of
source codes, and other proprietary information owned or licensed, whether for general business
usage (e.g. accounting, word processing, graphics, spreadsheet analysis, etc.) or specific,
unique-to-the-business usage, and all computer operating, security or programming software, owned
or licensed and used in the operation of the Vault Business;
(m) All tangible and intangible forms, whether or not stored, compiled or memorialized,
electronically, graphically, photographically, or in writing; and
(n) All other intangible assets (including all Claims, contract rights and warranty and
product liability claims against third parties) relating to the Assets or the Vault Business.
2.2.
Purchase Price
.
(a)
Purchase Price Payable
. In reliance on the representations and warranties of the
Seller and the Shareholders, and the performance of the covenants and fulfillment of the conditions
set forth in this Agreement, Purchaser will, at the Closing, purchase the Assets from the Seller
and in respect thereof will, subject to the provisions of this Agreement, pay an aggregate purchase
price (
Purchase Price
) to Seller equal to the sum of the amounts set forth in (1) and (2) below.
(1) The Agreed Liability Amount, payable pursuant to the provisions of
Section
2.2(b)
below; and
(2) The Contingent Quarterly Payment and the Additional Contingent Payment
(collectively, the
Contingent Payment
), if applicable in each case, calculated and payable
in accordance with
Sections 2.2(c)
and
2.2(d)
below.
(b)
Payment of Agreed Liability Amount
.
(1) Notwithstanding the provisions hereof, including but not limited to the provisions of
Section 2.2(b)(2)
hereof, the Seller shall transfer the Assets to the Purchaser at Closing
free and clear of any and all Liens and any and all Liabilities, and (2) the Purchaser shall not,
by virtue of its purchase of the Assets, assume or become responsible for any Liabilities of the
Seller or of any other Person whatsoever. All Liabilities of the Shareholders or either Seller
whatsoever, whether or not disclosed to Purchaser, and whether or not discharged pursuant to the
provisions of
Section 2.2(b)(2)
hereof or otherwise under this Agreement or the Schedules
attached hereto, shall constitute
Excluded Liabilities
. The Seller and the Shareholders hereby
jointly and severally covenant and agree to indemnify and hold Purchaser harmless with respect
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to
all Excluded Liabilities. If, subsequent to the Closing, any Excluded Liability is asserted
against the Purchaser or any affiliate thereof, then, notwithstanding any provision hereof to the
contrary, the Purchaser shall be permitted to pay, satisfy and discharge such Excluded Liability in
any manner Purchaser determines, in its sole and absolute discretion, and such payment,
satisfaction or discharge shall in no way undermine or diminish the obligations of Seller and
the Shareholder to indemnify the Purchaser with respect thereto. In addition, Purchaser shall be
entitled to the remedy of recoupment with respect to any such payment, satisfaction or discharge of
any Excluded Liability by Purchaser in accordance with the foregoing. Notwithstanding the
foregoing, subsequent to the Closing, Purchaser, rather than Seller or the Shareholders, shall be
responsible for the satisfaction of any obligation owed to a vendor set forth under the heading
Accounts Payable on
Schedule 2.2(b)(2)
attached hereto, but only to the extent that any
such obligation relates to goods or services provided by such vendor to Purchaser subsequent to the
Closing.
(2) At the Closing (as defined in
Section 2.3
hereof), the Purchaser shall deposit
cash in the aggregate amount of the Agreed Liabilities Amount with DLA Piper Rudnick Gray Cary US
LLP (
Escrow Agent
) in an escrow account (the
Agreed Liabilities Escrow
), which the Escrow Agent
shall hold pursuant to the provisions of an escrow agreement (the
Agreed Liabilities Escrow
Agreement
) in such form as may be agreed by the parties hereto prior to Closing and thereafter
attached hereto as
Exhibit 2.2(b)(2)
. Attached hereto as
Schedule 2.2(b)(2)
is a
list of all Creditors, and the last known amount owed to each such Creditor. Prior to the Closing,
Seller shall update
Schedule 2.2(b)(2)
to reflect, as to each Creditor, the amount that
such Creditor has agreed to accept in order to fully and completely discharge all obligations of
either Seller in favor of such Creditor, and Seller shall provide evidence to Purchaser, including
payoff letters from each Creditor, in form and substance satisfactory to Purchaser, indicating that
each Creditor has in fact agreed to accept the amount set forth next to its name on such updated
Schedule 2.2(b)(2)
to fully and completely discharge all obligations of either Seller in
favor of such Creditor, with the aggregate amount reflected on such updated
Schedule
2.2(b)(2)
to be equal to or less than the Agreed Liabilities Amount. Notwithstanding the
foregoing, as to each Creditor set forth on
Schedule 2.2(b)(2)
attached hereto as of the
date hereof under the heading Accounts Payable, to the extent that the designated last known
amount owed as of the date hereof set forth on such
Schedule 2.2(b)(2)
is less than $25,000
(each a
Minor Creditor
), Seller shall not be obligated to update
Schedule 2.2(b)(2)
as to
such Minor Creditor in accordance with the foregoing, and such Minor Creditor shall not be
satisfied out of the Agreed Liabilities Escrow in accordance with this
Section 2.2(b)(2)
.
However, the liabilities or obligations owed to all such Minor Creditors shall nevertheless
constitute Excluded Liabilities, and the provisions of Section 2.2(b)(1) hereof shall apply with
respect to such items in the same manner as with respect to all Excluded Liabilities. In addition,
to the extent that a Creditor has agreed to accept equity in the Seller in full or in partial
satisfaction of any obligation owed to such Creditor, the updated
Schedule 2.2(b)(2)
shall
so state, and evidence of such agreement satisfactory to Purchaser shall be provided to Purchaser
prior to Closing. As shall be set forth in further detail in the Agreed Liabilities Escrow
Agreement, at such time as each of the Creditors specified on
Schedule 2.2(b)(2)
attached
hereto
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(other than the Minor Creditors) presents the Escrow Agent with a duly executed satisfaction
and release (and with respect to Creditors holding recorded Liens, an appropriate instrument of
release), each in such form as is satisfactory to the Purchaser in its sole and absolute
discretion,
the Escrow Agent shall release the amount of cash set forth opposite such Creditors name (if
any) on such updated
Schedule 2.2(b)(2)
to such Creditor. Once a duly executed
satisfaction and release has been received from each of the Creditors (other than the Minor
Creditors), any funds remaining in the Agreed Liabilities Escrow shall be returned to the Seller.
(c)
Payment of Contingent Quarterly Payment and Additional Contingent Payment
.
(1)
Calculation and Payment
. The Contingent Quarterly Payment payable by Purchaser to
Seller pursuant to
Section 2.2(a)(2)
shall be calculated in accordance with this
Section 2.2(c)
. Not later than sixty (60) days after the close of each calendar quarter
after the Closing Date, the Purchaser shall calculate the Vault Net Revenue for the prior quarter
(each such quarter, a
Measurement Period
). Once the Vault Net Revenue for any Measurement Period
has been calculated, the payment of the Contingent Quarterly Payment with respect to such
Measurement Period shall become due and payable (subject to the provisions of
Section
2.2(c)(5)
). The Contingent Quarterly Payment payable with respect to each Measurement Period
shall equal the product of the Vault Net Revenue for such Measurement Period and ten percent (10%).
(2)
Additional Contingent Payment
. In addition to the Contingent Quarterly Payment
described in
Section 2.2(c)(1)
hereof, Seller may be entitled to additional contingent
payments (each an
Additional Contingent Payment
), as determined pursuant to this Section
2.2(c)(2). Seller shall not be entitled to any Additional Contingent Payment with respect to the
first four (4) quarterly Measurement Periods. After the end of each of the eight (8
th
),
twelfth (12
th
), sixteenth (16
th
) and twentieth (20
th
) quarterly
Measurement Periods, the Purchaser shall calculate (i) the total Vault Net Revenue for such
quarterly Measurement Period and the immediately preceding three (3) quarterly Measurement Periods
(in each case, the
Current Annual Vault Revenue
), and (ii) the total Vault Net Revenue for the
four (4) quarterly Measurement Periods immediately preceding the four (4) quarterly Measurement
Periods as to which the Current Annual Vault Net Revenue has been calculated (in each case the
Prior Annual Vault Net Revenue
). The Purchaser shall then determine the excess (if any) of, in
each case, the Current Annual Vault Net Revenue over the Prior Annual Vault Net Revenue (each an
Annual Increase
). If an Annual Increase exists, Purchaser shall pay to Seller an Additional
Contingent Payment equal to five percent (5%) of any such Annual Increase. To the extent payable
hereunder, each Additional Contingent Payment shall be payable within sixty (60) days of the end of
the eighth (8
th
), twelfth (12
th
), sixteenth (16
th
) or twentieth
(20
th
) quarterly Measurement Periods, as applicable.
(3)
Uncertain Nature of Contingent Quarterly Payment and Additional Contingent
Payments
. The Seller and the Shareholders acknowledge and agree that (i)
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Purchasers
obligation to pay the Contingent Quarterly Payment and the Additional Contingent Payment pursuant
to the terms hereof shall be contingent upon Purchasers attaining Vault Net Revenue with respect
to the relevant Measurement Period and (ii) Purchaser shall have no
obligation to pay to Seller any Contingent Quarterly Payment or Additional Contingent Payment
with respect to any Measurement Period with respect to which the Purchaser does not, for any
reason, achieve a positive Vault Net Revenue. Furthermore, the Purchaser shall have no obligation
whatsoever to make any further Contingent Quarterly Payments or Additional Quarterly Payments
attributable to any period of time after the twentieth (20
th
) quarterly Measurement
Period (that is, Sellers right to receive, and Purchasers obligation to pay, Contingent Payments
shall terminate on the fifth (5
th
) anniversary of the Closing Date).
(4)
No Standard of Care Imposed on Purchaser; Initial Investment Commitment
. The
obligation to pay the Contingent Quarterly Payment and the Additional Contingent Payment shall not
be deemed or otherwise construed to impose any standard of care or duty upon the Purchaser with
respect to its conduct of its business, which may, subject only to the terms of this
Section
2.2(c)(4)
, be conducted by the Purchaser in the exercise of its sole and absolute discretion.
The Purchaser agrees to arrange for up to One Million Dollars ($1,000,000) in funding for the
acquired Vault Business during the period beginning on the Closing Date and ending one (1) year
later to support the operational expenses of its conduct of the Vault Business, which may be in the
form of loans (from its shareholder, any affiliate, or a third party), and/or equity or some
combination (the
Initial Investment Commitment
). Except for the Initial Investment Commitment,
the Purchaser does not agree to provide any financing or invest any certain amount of time, money
or effort with respect to the Vault Business and shall have no duties or obligations to the Seller
or the Shareholders whatsoever with respect to the operation of the Vault Business or the
Purchasers other business, all of which shall be conducted in the exercise of the Purchasers sole
and absolute discretion.
(5)
Escrow of Contingent Quarterly Payments and Additional Contingent Payments
. For
each of the first twelve (12) quarterly Measurement Periods, twenty five percent (25%) of the
Contingent Quarterly Payment applicable to each such quarterly Measurement Period, if payable
hereunder, as well as twenty five percent (25%) of any Additional Contingent Payment payable
hereunder with respect to the periods ending with the eight (8
th
) and the twelfth
(12
th
) quarterly Measurement Periods, shall be deposited by Purchaser in an escrow
account (the
Contingent Payment Escrow Account
)
which the Escrow Agent shall hold pursuant to the
provisions of an escrow agreement (the
Contingent Payment Escrow Agreement
) in such form as
mutually agreed by the parties hereto prior to Closing and attached hereto as
Exhibit
2.2(c)(5)
, in order to secure the indemnification obligations of Seller and the Shareholders
set forth herein, provided, however, that no more than $300,000 in the aggregate shall be deposited
into the Contingent Payment Escrow Account in accordance with the foregoing. The Contingent
Payment Escrow Agreement will provide for 50% of the funds held therein to be released after three
(3) years and the balance to be released after five (5) years (subject to holdback with respect to
claims asserted prior to the release date).
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(6)
Application of Contingent Quarterly Payments and Additional Contingent Payments
.
In addition to the deposit of a portion of the Contingent Payments otherwise payable hereunder into
the Contingent Payment Escrow pursuant to
Section 2.2(c)(5)
hereof, twenty five percent (25%) of all Contingent Payments otherwise payable hereunder shall
be applied to repay any cash advances made by Purchaser to Seller, either prior to or subsequent to
the date hereof, including but not limited to any advances made by Purchaser to Seller pursuant to
the provisions of Section 10 hereof, until such time as all advances shall have been repaid in
full.
(d)
Audit of Vault Net Revenues Determination
. Promptly following the Purchasers
determination of Vault Net Revenue in accordance with the foregoing (which shall be the basis for
initially determining the Contingent Quarterly Payment and, if applicable, the Additional
Contingent Payment, with respect to the relevant Measurement Period), the accountants for the
Purchaser shall review such Vault Net Revenue determination and shall forward the results of such
review to the Purchaser, the Seller and the Shareholders. The Seller and the Shareholders shall
then have the right for ten (10) days to provide written comments and suggested changes to the
Purchasers accountants, with a copy to the Purchaser. If after consideration of such written
comments, the parties are not able to agree upon the Vault Net Revenue within an additional ten
(10) day period, then the matter shall be submitted to a reputable accounting firm selected by the
Purchasers accountants, and the determination of Vault Net Revenue made by such accounting firm
shall be conclusive and binding upon all parties for all purposes of this Agreement and for all
purposes of the Employment Agreements. If the Vault Net Revenue determined by the Purchasers
accountants (or in the event of a dispute, by the selected accounting firm) differ from the Vault
Net Revenue determined by the Purchaser, then the Contingent Quarterly Payment and, if applicable,
the Additional Contingent Payment, made pursuant to
Section 2.2(c)
with respect to the
relevant Measurement Period based upon the Purchasers determination of Vault Net Revenue for such
Measurement Period shall be increased or decreased, as applicable, by applying the formula set
forth in
Section 2.2(6)
to such re-determined Vault Net Revenue amount. If any change in
the Vault Net Revenue calculation results in an increase in the required payment, then the
Purchaser shall promptly pay such additional amount to the Seller. If any change in the Vault Net
Revenue calculation results in a decrease in the required payment, then the Seller shall promptly
pay the amount of any such decrease to the Purchaser. If in accordance with the foregoing any
dispute as to the Purchasers Vault Net Revenue is submitted to another accounting firm and the
Vault Net Revenue as determined by such other accounting firm is not materially different than the
Vault Net Revenue calculated by the Purchasers accountants, then the Seller and the Shareholders
shall pay the other accounting firms costs and expenses. If the Vault Net Revenue as determined
by such other accounting firm differs from the Vault Net Revenue calculated by the Purchasers
accountant by ten percent (10%) or more, then the Purchaser shall pay the other accounting firms
costs and expenses.
(e)
Purchasers Right of Set-Off
. In addition to the rights and remedies set forth
elsewhere in this Agreement (including, but not limited to
Section 2.2(c)(5)
and
Section
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2.2(c)(6)
), the Purchaser shall have the right to set off against any payment
otherwise due to Seller hereunder the amount of loss, liability or damages (including reasonable
attorneys fees and expert fees) sustained by Purchaser due to the breach by the Seller and/or any
Shareholder of
any representation or warranty or other provision contained in this Agreement, in the
Non-Competition Agreement or in any Employment Agreement, or due to the default by the Seller
and/or any Shareholder under any of the foregoing agreements, including but not limited to amounts
as to which Seller and the Shareholders are required to indemnify the Purchaser under this
Agreement.
(f)
Prepaid Items
. Liabilities for prepaid items attributable to the Assets, such as
real estate taxes, personal property taxes, rent, fuel, telephone or other utility and service
charges, shall be prorated and allocated between the Seller and Purchaser as of the close of
business on the Closing Date, and the amount of such proration shall be a deduction or addition, as
the case may be, to the Purchase Price.
(g)
Allocation of Purchase Price
. The Purchaser and the Seller shall, prior to
Closing, agree upon an allocation of the Purchase Price pursuant to Section 1060 of the Code and
the Income Tax Regulations, and, once agreed, such allocation shall be attached as
Exhibit2.2(g)
. The Purchaser and the Seller agree to reflect such allocation on IRS Form
8594 (Asset Acquisition Statement) under Section 1060, including any required amendments or
supplements thereto (
Form 8594
), and shall jointly prepare such Form 8594 for execution promptly
after Closing. The parties hereto further agree that (a) the agreed upon allocation of the
Purchase Price shall be used in filing all required forms under Section 1060 of the Code and all
tax returns; and (b) they will not take any position inconsistent with such allocation upon any
examination of any such tax return, in any refund claim or in any tax litigation.
2.3
Closing
.
(a)
Time and Place
. Subject to the terms and conditions of this Agreement, the sale
and purchase of the Assets contemplated hereby (the
Closing
) shall take place at the offices of
DLA Piper Rudnick Gray Cary US LLP, 6225 Smith Avenue, Baltimore, Maryland 21209-3600, within three
(3) days of the satisfaction (or waiver, as applicable), of the conditions to Closing set forth in
Section 8
hereof, or at such other time, date or place as the parties hereto may mutually
agree upon in writing. The time and date of the Closing are herein referred to as the
Closing
Date
, and the term Closing Date shall include the date on which the transactions contemplated
hereunder are consummated.
(b)
Deliveries by Purchaser to the Seller
. At the Closing, Purchaser (or its
designee) shall deliver or cause to be delivered each of the following:
(i) Cash in the amount of the Agreed Liability Amount, payable to the Escrow Agent, as
provided for under
Section 2.2(b)
hereof;
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(ii) The Employment Agreements (as defined herein), executed by the Purchaser;
(iii) The Agreed Liabilities Escrow Agreement, executed by the Purchaser; and
(iv) The Contingent Payment Escrow Agreement, executed by the Purchaser.
(c)
Deliveries by the Seller and the Shareholders
. At Closing, the Seller and/or the
Shareholders, as applicable, shall deliver or cause to be delivered to the Purchaser (or its
designee) each of the following:
(i) An Assignment and Bill of Sale, in such form as mutually agreed by the parties, executed
by the Seller, selling, assigning, transferring and delivering to Purchaser all of the Assets, free
and clear of any and all Liens;
(ii) A Certificate of the Secretary of each of BVI and BVST showing the signatures of those
officers of BVI and BVST, respectively, authorized to sign this Agreement on behalf of BVI and BVST
and certifying that said signatures are the signatures of said authorized officers;
(iii) A copy of the Articles of Incorporation and By-Laws of each of BVI and BVST, together
with all amendments and supplements thereto, certified by the Secretary of each of BVI and BVST, as
applicable, as being true and complete;
(iv) Good standing certificates of each of BVST and BVI dated no earlier than ten (10)
calendar days prior to the Closing Date, certifying respectively (i) that BVST is in good standing
in the State of Delaware and is qualified to do business in the State of New York; (ii) that BVST
is qualified to do business in all of the other states in which BVST then does business; (iii) that
BVI is in good standing in the State of Nevada and is qualified to do business in the State of New
York; and (iv) that BVI is qualified to do business in all of the other states in which BVI then
does business.
(v) Resolutions of the shareholders and the directors of each of BVI and BVST certified by the
Secretary of each of BVI and BVST as having been duly and validly adopted and as being in full
force and effect on the date hereof, authorizing the execution and delivery by each of BVI and BVST
of this Agreement and other agreements and instruments executed and delivered by BVI and BVST as
provided for herein, and authorizing the performance by BVI and BVST of the transactions
contemplated hereby and thereby;
(vi) A duly executed certificate described in
Section 8.1
hereof;
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(vii) Duly executed non-competition agreements from each of the Shareholders, BVI, BVST and
any employee of Seller that is also a shareholder of either Seller in a form satisfactory to
Purchaser, providing for a five (5) year non-compete term (collectively, the
Non-Competition
Agreements
).
(viii) Duly executed employment agreements from each of the Key Seller Employees in a form
satisfactory to Purchaser (collectively, the
Employment Agreements
) which shall provide a minimum
three (3) year term, and shall provide that such Key Employees will participate in the programs
generally offered to the Purchasers executive team with respect to performance bonuses, medical
benefits, insurance and the like.
(ix) Duly executed intellectual property assignments from each of the employees, prior
employees, consultants and prior consultants of Seller specified on
Schedule 2.3(c)(ix)
attached hereto in a form satisfactory to Purchaser (collectively, the
Intellectual Property
Assignments
).
(x) Duly executed confidentiality agreements from each of Sellers employees that are offered
and accept employment with the Purchaser (including but not limited to the Key Seller Employees) in
a form satisfactory to Purchaser (collectively, the
Confidentiality Agreements
).
(xi) Duly executed assignments from Seller, assigning all of Sellers rights in, to and under
the Assigned Contracts to the Purchaser on such terms and conditions as the Purchaser shall in the
exercise of its sole and absolute discretion determine (collectively, the
Contract Assignments
).
(xii) Duly executed written consents from each of the parties to each of the Assigned
Contracts, to the extent such consent is required pursuant to the terms thereof, consenting to the
assignment of the Contracts to the Purchaser, in such form as Purchaser shall in the exercise of
its sole and absolute discretion determine (collectively, the
Consents
).
(xiii) A duly executed assignment of the existing Lease referred to on
Schedule 3.20
from Seller to Purchaser, in form and substance satisfactory to Purchaser, and the consent of the
landlord under such Lease to such assignment.
(xiv) An opinion of counsel to the Seller in form and substance satisfactory to Purchaser
covering the items described in
Section 8.9
hereof (the
Legal Opinion
).
(xv) A duly executed termination of the Intercompany License Agreement in form and substance
satisfactory to the Purchaser.
(xvi) Evidence satisfactory to the Purchaser that the Retention Program, as defined herein,
has been established.
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(xvii) The Agreed Liabilities Escrow Agreement and the Contingent Payment Escrow Agreement,
duly executed by Seller.
(xviii) A duly executed assignment of Sellers rights to the Big Vault trademark, and a duly
executed assignment of Sellers rights to all of the third party software identified on Schedule
3.21(f), in each case, in form and substance satisfactory to the Purchaser.
(xix) All other documents necessary or appropriate, in the opinion of Purchaser, to effectuate
the purchase and sale of the Assets at the Closing, free and clear of all liens, in accordance with
the provisions of this Agreement.
2.4
Further Assurances
.
In addition to the actions, documents and instruments specifically required to be taken or
delivered hereby, prior to and after the Closing and without further consideration, the Seller and
the Shareholders shall execute, acknowledge and deliver such other assignments, transfers, consents
and other documents and instruments and take such other actions as Purchaser or its counsel may
reasonably request to complete and perfect the transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE SELLER.
The Seller and the Shareholders hereby jointly and severally represent and warrant to
Purchaser that the following representations and warranties are true and correct in all material
respects on the date hereof and will be true and correct in all material respects on and as of the
Closing Date:
3.1
Organization and Good Standing
.
(a) BVST is a corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and in all other states in which BVST does business, is qualified to do
business in the State of New York and all other states in which BVST does business and has full
corporate power to execute, deliver and perform its obligations under this Agreement.
(b) BVI is a corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and all other states in which BVI does business, is qualified to do business
in the State of New York and all other states in which BVI does business and has full corporate
power to execute, deliver and perform its obligations under this Agreement.
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3.2
Authority and Consents
.
The Seller and the Shareholders have full power to enter into and to carry out the terms of
this Agreement. The Seller and its directors have taken all action, corporate and otherwise,
necessary to authorize the execution, delivery and performance of this Agreement, the
completion of the transactions contemplated hereby and the execution and delivery of any and
all instruments necessary or appropriate to effectuate fully the terms and conditions of this
Agreement. Except as set forth on
Schedule 3.2
, no consent or approval of any third party,
court, governmental agency, other public authority or third party with any actual or alleged
interest in the Sellers business or the Assets is required as a condition to (a) the
authorization, execution, delivery and performance of this Agreement or any other instruments
necessary to effectuate this Agreement; or (b) the consummation by the Seller of the transactions
contemplated herein. This Agreement has been properly executed and delivered by the Shareholders
and the Seller and constitutes the valid and legally binding obligation of the Shareholders and the
Seller and is enforceable against the Shareholders and the Seller in accordance with its terms.
3.3
Rights of First Refusal; Right of First Negotiation, Etc.
There are no applicable rights of first refusal, rights of first negotiation, rights of first
offer or similar rights of any kind that would require either Seller or the Shareholders to provide
any third party with notice, an opportunity to discuss, negotiate or to engage in any of the
transactions contemplated hereby prior to consummating the transactions contemplated hereby.
3.4
No Conflict
.
Neither the execution and delivery of this Agreement nor the carrying out of the transactions
contemplated hereby will result in (a) any violation, termination or modification of, or conflict
with, the articles of incorporation or By-Laws of either Seller or any of the contracts or other
instruments to which either Seller or any of the Shareholders is a party, or of any judgment,
decree or order applicable to either Seller or the Shareholders; or (b) the creation of any Lien on
all or any portion of the Assets.
3.5
Brokers and Finders Fees
.
All negotiations relating to this Agreement have been carried on between the parties directly
without the intervention of any person that would give rise to a valid claim against any of the
parties for a brokerage commission, finders fee, advisory fee or other like payment (each, a
Brokers Fee
). The Seller and the Shareholders shall jointly and severally indemnify and hold
the Purchaser harmless from and against any cost, expense, liability or obligation associated with
any Brokers Fee payable to any party by virtue of the purchase and sale contemplated by this
Agreement.
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3.6
Litigation and Compliance
.
Except as set forth on
Schedule 3.6.
, there is no Claim pending or threatened against
the Assets, either Seller, or the Shareholders; nor is there any valid basis for any such
litigation, arbitration, mediation, investigation or other proceeding relating to the Assets,
either Seller, the Shareholders or the transactions contemplated by this Agreement. Neither Seller
nor the Shareholders are subject to any order of any court, regulatory commission, board or
administrative body entered in any proceeding to which BVST, BVI or either of the Shareholders
is a party or of which any of the foregoing has knowledge. The Seller has complied with and is
currently in compliance with all laws, rules, regulations, orders, ordinances, judgments and
decrees of any governmental authority applicable to the Assets or the Sellers Vault Business.
3.7
Title and Condition of Assets
.
The Seller has good and marketable title to all of the Assets, free and clear of all Liens,
other than the Liens set forth on
Schedule 3.7
, all of which shall be fully and entirely
discharged by Seller at or prior to the Closing. The Assets are in good operating condition and
repair, and constitute all of the assets necessary to the conduct by the Seller of its Vault
Business in accordance with its past practice.
3.8
Accounts Receivable
.
All Accounts Receivable of the Seller reflected in the balance sheet for the most recently
ended period included in the Financial Statements, and all Accounts Receivable that have arisen
since the date of the latest balance sheet of Seller included in the Financial Statements (except
Accounts Receivable that have been collected since such date) are valid and enforceable claims, and
constitute bona fide Accounts Receivable resulting from the provision of services in the ordinary
course of the Sellers Vault Business. The Accounts Receivable are subject to no valid defense,
offsets, returns, allowances or credits of any kind, and are fully collectible within sixty (60)
days from their due date. Except for the Accounts Receivable, the Seller has not made any loan or
advance to any Person.
3.9 [Reserved.]
3.10
Financial and Full Information
.
The Seller has delivered to Purchaser financial statements covering the periods from
until
(the
Financial Statements
), copies of which are attached
hereto as
Exhibit 3.10
. The Financial Statements have been prepared in accordance with
generally accepted accounting principles (
GAAP
), are true, correct and complete in all material
respects, and accurately reflect the financial position of the Seller for the periods set forth
therein. The Seller has provided to Purchaser all information material to the Assets and/or the
Vault Business, and no representation or warranty made in this Agreement or information
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furnished
pursuant hereto to Purchaser, including that set forth in any Schedules or Exhibits hereto,
contains any untrue statement or omits to state any material fact relevant to the Assets or the
Vault Business.
3.11
Absence of Undisclosed Liabilities
.
As of the date hereof and as of the Closing Date, the Seller does not have and shall not have
any indebtedness or other liability of any kind whatsoever, absolute or contingent,
that is not either specifically reflected on the Financial Statements or otherwise
specifically disclosed in writing to Purchaser in this Agreement. In addition, all indebtedness
and/or other liabilities whatsoever (including trade payables) of Seller are accurately reflected
on
Schedule 2.2(b)(2)
, and Seller has no indebtedness and/or other liabilities (including
trade payables) whatsoever other than as set forth on
Schedule 2.2(b)(2)
, attached hereto.
3.12 [Reserved.]
3.13
Licenses and Permits
.
Schedule 3.13
of the Disclosure Schedules sets forth a complete list of all of the
certificates, licenses, consents, permits or other approvals required of or obtained by the Seller
in connection with the operation of the Vault Business, including all certificates of use and
occupancy (collectively, the
Licenses and Permits
). The Seller has provided the Purchaser with
true and complete copies of all of the Licenses and Permits. All of the Licenses and Permits are
in full force and effect and the Seller is not in violation in any material respect with respect to
any of them. No proceedings are pending or threatened by any applicable authority to revoke or
limit the scope of any of the Licenses and Permits. Other than those listed on
Schedule
3.13
, there are no Licenses or Permits necessary for the conduct of the Vault Business as it is
currently being conducted. None of the Licenses and Permits would be rendered ineffective or be
required to be reissued as a result of the consummation of the transactions contemplated hereby.
3.14
Business Records
.
All business records of the Seller have been provided to Purchaser for review, are complete
and correct in all material respects, and fairly reflect the operations of the Vault Business.
3.15
Insurance
.
Set forth on
Schedule 3.15
is a true and complete list and description of all
insurance in force on the date hereof with respect to the Assets and/or the Vault Business,
together with a summary description of the hazards insured against. Such policies are in full
force and effect with reputable insurers and copies thereof have been provided to Purchaser. There
are no outstanding unpaid claims under any such policy, and neither the Seller nor the Shareholders
are aware of any notice of cancellation or non-renewal of any such policy. There
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are and have been
no inaccuracies in any application for such policies, nor any failure to pay premiums thereon when
due. Neither the Seller nor the Shareholders have received any notice from any of its insurance
carriers that any insurance premiums will be materially increased in the future or that any
insurance coverage will not be available to the Seller in the future on substantially the same
terms as now in effect. No such insurance policies call for any retrospective premium adjustments.
All such insurance policies are freely assignable by the Seller to Purchaser without the consent
of any party.
3.16
Operation of the Vault Business
.
The Assets are sufficient to operate the Vault Business in accordance with past practice. All
of the Assets are in good condition and repair, and have been maintained in accordance with
appropriate manufacturers standards.
3.17
Absence of Certain Changes
. Since January 1, 2005, except as set forth on
Schedule 3.17
, there has not been:
(a) any material adverse change in the Sellers financial position, results of operations,
manner of conducting business, assets, liabilities or net worth;
(b) any acquisition or disposition by the Seller of any asset or property, or any agreement to
do the same other than in the ordinary and regular course of business;
(c) created, incurred or permitted to exist any Lien on any of the Sellers assets or
properties;
(d) any material damage, destruction or loss, whether or not covered by insurance;
(e) any change in the Sellers authorized or issued capital stock; grant of any stock option
or right to purchase shares of capital stock of the Seller; issuance of any security convertible
into such capital stock; grant of any registration rights; purchase, redemption, retirement or
other acquisition by the Seller of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of capital stock, other than
the issuance of shares of Seller to certain creditors of Seller in lieu of, and in satisfaction of,
all or some portion of the indebtedness of Seller in favor of such creditors, as set forth in
detail on
Schedule 3.17(e)
;
(f) any amendment to the charter or by-laws of the Seller; or
(g) any other event or condition experienced by the Seller of any character which would alone
or in the aggregate with other events or conditions have a material adverse effect on the Seller or
the Vault Business.
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3.18
Employee Matters
.
(a)
Schedule 3.18
contains a complete and correct list of all Employee Benefit Plans
(as defined below) and any other employee benefit arrangements or payroll practices, including,
without limitation, employment agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay, severance pay policies,
salary continuation for disability, consulting or other compensation
arrangements, workers compensation, retirement, deferred compensation, bonus, stock purchase,
hospitalization, medical insurance, life insurance, tuition reimbursement or scholarship programs,
any plans providing benefits or payments in the event of a change of control, change in ownership,
or sale of a substantial portion (including all or substantially all) of the assets of the Seller,
maintained by the Seller or to which the Seller has contributed or is obligated to make payments,
in each case with respect to any employees (or, if the Seller has any existing liability, former
employees) of the Seller (hereinafter, the
Employee Benefit Plans
). All Employee Benefit Plans
which constitute Employee Pension Plans (as defined below) (hereinafter, the
Employee Pension
Plans
) are separately listed on
Schedule 3.18
of the Disclosure Schedules. The Seller and
its ERISA Affiliates do not and have never maintained or participated in any Employee Benefit Plans
which are: (a) subject to Title IV of the Employee Retirement Income Security Act of 1974, as
amended (
ERISA
) or the minimum funding requirements of Section 412 of the Code; (b) Multiemployer
Plans (as defined below); (c) multiple employer plans subject to Sections 4063 and 4064 of ERISA
(
Multiple Employer Plans
); or (d) plant closing benefit plans. As used in this Agreement, (i)
Employee Benefit Plan
shall have the meaning ascribed to such term by Section 3(3) of ERISA, (ii)
Employee Pension Plan
shall have the meaning ascribed to such term by Section 3(2) of ERISA,
(iii)
ERISA Affiliate
shall refer to any trade or business, whether or not incorporated, the
employees of which, together with the employees of the Seller, are treated as employed by a single
employer under Section 414(b), (c), (m) or (o) of the Code, and (iv)
Multiemployer Plans
shall
mean any multiemployer plan as defined in Section 3(37) of ERISA to which the Seller or an ERISA
Affiliate has contributed or is or was obligated to make payments, in each case with respect to any
current or former employees of the Seller or an ERISA Affiliate before the Closing Date.
(b) Except as set forth on
Schedule 3.18
:
(i) the Employee Pension Plans which are defined contribution plans intended to qualify
under Section 401 of the Code are so qualified and the trusts maintained pursuant thereto are
exempt from federal income taxation under Section 501 of the Code, and nothing has occurred with
respect to the operation of such plans which could cause the loss of such qualification or
exemption or the imposition of any material liability, lien, penalty, or Tax under ERISA or the
Code;
(ii) true, correct and complete copies of the following documents, with respect to the
Employee Benefit Plans have been delivered to Purchaser: (A) all plan documents,
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including trust
agreements, insurance policies and service agreements and amendments thereto, (B) the most recent
Forms 5500 and any financial statements attached thereto and those for the prior three years, (C)
the last Internal Revenue Service determination letter, and the applications and supporting
disclosure documents submitted to the Internal Revenue Service with respect to such determination
letter, and all other correspondence or filings with a governmental agency or entity including
without limitation compliance program applications, (D) summary plan descriptions, (E) employee
handbooks or manuals, and (F) the most recent actuarial written descriptions of all non-written
agreements relating to any such plan;
(iii) there are no pending Claims which have been asserted or instituted by or against the
Employee Benefit Plans, against the assets of any of the trusts under such plans or by or against
the plan sponsor, plan administrator, or any fiduciary of the Employee Benefit Plans (other than
routine benefit claims) nor do the Seller and/or the Shareholders have knowledge of facts which
could form the basis for any such Claims;
(iv) all amendments and actions required to bring the Employee Benefit Plans into conformity
in all material respects with all of the applicable provisions of ERISA, the Code and any other
applicable laws (including the rules and regulations thereunder) have been made or taken except to
the extent that such amendments or actions are not required by Law to be made or taken until a date
after the Closing Date and are disclosed on
Schedule 3.18 (b)(iv)
;
(v) the Employee Benefit Plans have been maintained, in form and operation, in all material
respects in accordance with their plan documents and with all provisions of the Code and ERISA
(including rules and regulations thereunder) and other applicable Law, and none of the
Shareholders, the Seller nor any party in interest or disqualified person with respect to the
Employee Benefits Plans has engaged in a prohibited transaction within the meaning of Section
4975 of the Code or Title I, Part 4 or ERISA;
(vi) none of the Employee Benefit Plans contains any provisions which would prohibit the
transactions contemplated by this Agreement or which would give rise to any severance, termination
or other payments or liabilities, including without limitation any acceleration in benefit vesting
or distribution, as a result of the transactions contemplated by this Agreement;
(c) Attached hereto as
Schedule 3.18(c)
is a complete and correct list of (i) all
employee grievances and (ii) each person who, as of the date set forth in such list, is employed by
the Seller, including each active employee and each employee classified as inactive as a result of
disability, leave of absence, layoff or other absence. With respect to such persons, such list
includes the positions and the current wages for the most recent payroll period.
Schedule
3.18(c)
also contains a description of all existing severance, accrued vacation obligations or
retiree benefits of any current or former director, officer, employee or consultant of the Seller.
The employment or consulting arrangement of Seller with all such persons are terminable at will.
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The Seller has not made any written or oral agreement with or promise to any employee, officer or
consultant regarding continued employment by the Purchaser after the Closing Date.
(d) The Seller and the Shareholders shall undertake good faith efforts to cause the Sellers
employees to become employees of the Purchaser subsequent to the Closing, but the parties hereto
acknowledge and agree that, except for the Purchasers obligation to employ the Key Seller
Employees pursuant to the Employment Agreements, the Purchaser shall have no obligation whatsoever
to hire any such employee. In furtherance of the obligations of Seller and the Shareholders
pursuant to the foregoing provision, the Seller agrees to offer, at its sole cost
and expense, an incentive/retention program upon terms and conditions satisfactory to the
Purchaser to encourage the Sellers employees to become and remain employees of the Purchaser
subsequent to the Closing (the
Retention Program
).
3.19
Environmental Matters
.
(a) The Seller has not released, emitted, buried or otherwise disposed of Regulated Substances
(as hereinafter defined) on any property. No one else has released, emitted, buried or otherwise
disposed of Regulated Substances on any real property included in the Assets or any real property
the leasehold interest of which is included in the Assets (each a
Property
and together the
Properties
). No storage tanks, underground or otherwise, are or have been located on any of the
Properties. The Seller has complied with all Environmental Laws (as hereinafter defined)
pertaining to the use, ownership, and operation of the Properties. There are no asbestos
containing materials (
ACMs
), polychlorinated biphenyls (
PCBs
) or radioactive substances
located on the Properties. The Seller has not received any notice, demand, suit or information
request pursuant to the Comprehensive Environmental Response, Compensation and Liability Act
(
CERCLA
) or any comparable state Law with respect to any Property, nor does it have knowledge of
any other partys receipt of same relating to any of the Properties. None of the Properties is
listed on any regulatory list of contaminated properties, including but not limited to the National
Priorities List promulgated pursuant to CERCLA, the CERCLIS or any federal, state or local
counterpart. The Seller has no existing or potential liability under any Environmental Laws
pertaining to any of the Properties. No environmental approvals, clearances or consents are
required under applicable Law from any governmental entity or authority in order for the Purchaser
and the Seller to consummate the transactions contemplated herein. There are no conditions on any
adjacent properties which threaten any Property. The Seller is not required to have, nor does the
Seller have, any permits or approvals issued under any Environmental Law. The Seller and the
Shareholders have disclosed, prior to the date of this Agreement, the Sellers waste practices, use
of Regulated Substances and all potentially material environmental matters pertaining to the
Properties, and has disclosed all reports, assessments, remedial action plans or other similar
documents relating to any environmental condition, whether or not material, of the Properties.
(b) As used in this Agreement: (i)
Environmental Law
means any statute, regulation, rule,
code, common law, order or judgment of any applicable federal, state, local or
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foreign jurisdiction
relating to pollution, hazardous substances, hazardous wastes, petroleum or otherwise relating to
protection of the environment, natural resources or human health, including, by way of example and
not by way of limitation, the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act (
RCRA
), the Comprehensive Environmental Response Compensation and Liability Act
(
CERCLA
), the Toxic Substances Control Act (
TSCA
), and the Emergency Planning and Community
Right-to-Know Act, all as currently amended; (ii)
Regulated Substances
means any substance
regulated under Environmental Laws, including but not limited to hazardous waste, as defined
pursuant to RCRA, hazardous substances, as defined pursuant to CERCLA, toxic substances as defined
under TSCA, hazardous
materials, as defined under the Hazardous Materials Transportation Act, petroleum and its
fractions, ACMs and PCBs; and (iii) the Seller includes any predecessors or affiliates of the
Seller.
3.20
Property
.
(a) None of the Property is the subject of any lease or other use or occupancy agreement
(whether oral or written) whatsoever, except as set forth on
Schedule 3.20
(
Leases
).
(b) All of the Leases are valid and in full force and effect, enforceable against the Seller
and against the other parties thereto, and have not been assigned, modified, supplemented or
amended. The Seller has delivered to the Purchaser true and complete copies of all of the Leases,
all amendments thereto, and all material correspondence related thereto, including all
correspondence pursuant to which any party to any of the Leases declared a default thereunder or
provided notice of the exercise of any option granted to such party under such Lease.
(c) There are no pending or threatened condemnation proceedings, lawsuits or administrative
actions relating to any of the Property or any other matters which do or may adversely effect the
current use, occupancy or value thereof.
(d) The Property and all present uses and operations of the Property comply with all
applicable zoning, land-use, building, fire, labor, safety, subdivision and other governmental
requirements and all deed or other title covenants or restrictions applicable thereto. Neither the
Shareholders nor the Seller has received any notice that any of the Property, or the use, occupancy
or operation thereof violates any governmental requirements or deed or other title covenants or
restrictions.
(e) The Seller has obtained all approvals of governmental authorities (including certificates
of use and occupancy, licenses and permits) required in connection with the current ownership, use,
occupation and operation of the Property. None of the Property is dependent upon or benefit from
any non-conforming use or similar zoning classification.
(f) Except as set forth on
Schedule 3.20(a)
, there are no parties other than the
Seller in possession of any of the Property or any portion thereof, and there are no leases,
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subleases, licenses, concessions or other agreements, written or oral, granting to any party or
parties other than the Seller the right of use or occupancy of any of the Property or any portion
thereof other than the Leases. There are no outstanding options or rights of first refusal to
purchase any of the Property, or any portion thereof or interest therein.
3.21
Intellectual Property
.
(a)
Schedule 3.21(a)
contains a true and complete list of the Intellectual Property,
and includes details of all due dates for further filings, maintenance and other payments
or other actions falling due in respect of the Intellectual Property within twelve (12) months
following the Closing Date, and the current status of the corresponding registrations, filings,
applications and payments. All of the registrations and applications arising from or relating to
the Intellectual Property are and remain valid and subsisting, in good standing, with all fees,
payments and filings due as of the Closing Date duly made, and the due dates specified on
Schedule 3.21(a)
are accurate and complete in all material respects. All of these
registrations and applications are enforceable. The Seller has delivered correct and complete
copies of all of these registrations and applications, and has made available for review correct
and complete copies of all other written documentation evidencing ownership of each of the
foregoing. The Seller has made all other registrations relating to the Vault Business that it is
required to have made and is in good standing with respect to such registrations with all fees due
as of the Closing duly made.
(b) The Intellectual Property consists solely of items and rights that are: (1) owned by the
Seller; (2) in the public domain; or (3) rightfully used by the Seller pursuant to a valid license,
sublicense, consent or other similar written agreement (the
Licensed Intellectual Property
). The
parties and date of each such agreement regarding the Licensed Intellectual Property are set forth
on
Schedule 3.21(b)
. The Seller has all rights in the Intellectual Property necessary and
sufficient to carry out the Sellers current activities and proposed activities relating to the
Vault Business (and had all rights necessary to carry out its former activities at the time such
activities were being conducted), including and to the extent required to carry out such
activities, rights to make, use, reproduce, modify, adapt, create derivative works based on,
translate, distribute (directly and indirectly), transmit, display and perform publicly, license,
rent and lease and, as applicable, assign and sell, the Intellectual Property. The Seller has
delivered correct and complete copies of all material license agreements to the Purchaser, and, as
applicable, has made available for review correct and complete copies of all other written
documentation evidencing that the Seller has the necessary and sufficient rights in each of the
foregoing.
(c) The Seller has not infringed upon or misappropriated any Intellectual Property Rights or
personal right of any person anywhere in the world. No Claims or written notice (1) challenging
the validity, effectiveness or ownership by the Seller of any of the Intellectual Property, or (2)
to the effect that the use, distribution, licensing, sublicensing, sale or any other exercise of
rights in any product, service, work, technology or process as now used or
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offered or proposed for
use, licensing, sublicensing, sale or other manner of commercial exploitation by the Seller
infringes or will infringe on any Intellectual Property Rights or personal right of any Person have
been asserted or are threatened by any Person, nor are there any valid grounds for any bona fide
Claim of any such kind. There is and has been no unauthorized use, infringement or
misappropriation of any Intellectual Property by any third party, employee or former employee.
(d) All personnel (including employees, agents, consultants and contractors), who have
contributed to or participated in the conception and/or development of the Intellectual
Property on behalf of the Seller have executed nondisclosure agreements in the form set forth
on
Schedule 3.21(d)
and either (1) have been a party to a work-for-hire and/or other
arrangement or agreements with the Seller in accordance with applicable international, national,
state and local Law that has accorded the Seller full, effective, exclusive and original ownership
of all tangible and intangible property and Intellectual Property Rights thereby arising or
relating thereto, or (2) have executed appropriate instruments of assignment in favor of the Seller
as assignee that have conveyed to the Seller effective and exclusive ownership of all tangible and
intangible property and intellectual property rights thereby arising and related thereto. Prior to
the date hereof, the Seller has provided copies of all such written agreements or provided a
summary of the terms of any such oral agreements to Purchaser.
(e) The Seller is not, nor as a result of the execution or delivery of this Agreement, or
performance of the Sellers obligations hereunder, will the Seller be, in violation of any license,
sublicense, agreement or instrument relating to the Intellectual Property to which the Seller is a
party or otherwise bound, nor will execution or delivery of this Agreement, or performance of the
Sellers obligations hereunder, cause the diminution, termination or forfeiture of any Intellectual
Property or any rights therein or thereto.
(f)
Schedule 3.21(f)
contains a true and complete list of all of the Sellers computer
software programs, products and services included in the Intellectual Property, including all
program code, databases and documentation, without regard to form of media or storage
(collectively, the
Software Programs
). Except with respect to third party software or technology
licensed by the Seller (to which the Seller holds appropriate and valid licenses providing the
Seller with the rights necessary to conduct the Vault Business as presently conducted or as
anticipated to be conducted), the Seller owns full and unencumbered right and good, valid and
marketable title to such Software Programs free and clear of all Liens.
(g) The source code and system documentation relating to the Software Programs (1) have at all
times been maintained in strict confidence; (2) have been disclosed by the Seller only to employees
who have a need to know the contents thereof in connection with the performance of their duties
to the Seller and who have executed the nondisclosure agreements referred to in
Section
3.21(d)
; and (3) have not been disclosed to any third party, except those third parties set
forth on
Schedule 3.21(d)
who have executed restrictive license and nondisclosure
agreements and/or source code escrow agreements with the Seller.
Schedule
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3.21(g)
identifies all agreements pursuant to which source code to the Software Programs has been escrowed
with any third party. The Seller has provided true and complete copies of all such escrow
agreements and such other license and nondisclosure agreements as are identified above, and as
applicable, has made available for review correct and complete copies of all other written
documentation evidencing agreements to release of any source code of the Software Programs to any
third party.
(h) The Software Programs do not contain any open source program code, modules, utilities or
libraries that are covered by open source licenses that require as a condition of use, modification
or redistribution of such Software Program and/or other software programs combined or distributed
with any such Software Program that it be (1) disclosed or distributed in source code form, (2)
licensed for the purpose of making derivative works, or (3) redistributable at no charge subject to
the open source license applicable to such open source program code, modules, utilities or
libraries (collectively,
Open Source Code
). All Software Programs will be scanned for Open
Source Code prior to Closing. If Purchaser determines that any Software Program includes any Open
Source Code, this will need to be remedied to Purchasers satisfaction at Sellers sole cost and
expense prior to and as a condition to Closing.
(i) The Seller has taken all reasonable steps, in accordance with normal industry practice, to
preserve and maintain complete notes and records relating to the Intellectual Property and to cause
the same to be readily understood, identified and available.
(j) The Intellectual Property is free and clear of any and all Liens and nothing shall
interfere with the quiet enjoyment of the Purchaser with respect to the Intellectual Property
following consummation of the transactions contemplated hereby.
(k) Except as set forth on
Schedule 3.21(k)
, the Seller does not owe any royalties,
license fees, guaranteed maintenance fees or other payments to third parties in respect of the
Intellectual Property. All royalties, license fees, guaranteed maintenance fees or other payments
set forth on
Schedule 3.21(k)
that have accrued, or will accrue, prior to the Closing have
been paid or will be paid prior to Closing. The Seller will not owe any such payments or any
additional payments as a result of the consummation of the transactions contemplated hereby.
(l) The Seller has used its commercially reasonable efforts to regularly scan the Software
Programs and the other items of Intellectual Property with best-in-class virus detection
software. The Software Programs and other Intellectual Property contain no viruses, Trojan
horses, trap doors, Easter eggs, time bombs, cancel bots or other computer programming routines
that are intended to damage, detrimentally interfere with or surreptitiously intercept with or
expropriate any system, data or personal information. For the purposes of this Agreement, virus
means any computer code intentionally designed to disrupt, disable or harm in any manner the
operation of any software or hardware. None of the foregoing contains any worm, bomb, backdoor,
clock, timer, or other disabling device code, or any other design or routine that
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causes any
system, software, data or information to be erased, inoperable, or otherwise incapable of being
used, either automatically or upon command by any party.
(m) The Seller has taken and will continue to take all reasonable measures to protect the
secrecy, confidentiality, and value of all trade secrets and Intellectual Property Rights included
in the Intellectual Property transferred pursuant to this Agreement. Neither the Seller
nor any other party has taken any action or failed to take any action that directly or
indirectly caused any Intellectual Property to enter the public domain or in any way adversely
affect its value to the Purchaser, or its absolute ownership thereof. The Seller acknowledges and
agrees that from and after the Closing, the Purchaser will have a legitimate and continuing
proprietary interest in the protection of trade secrets and non-public confidential information,
knowledge, data and similar information relating to the Intellectual Property and the confidential
information included therein (the
Confidential Information
). The Seller agrees that prior to and
following the Closing it shall secure and maintain the confidentiality of the Confidential
Information in a manner consistent with the importance and value of such information and the
maintenance of the Purchasers rights therein, but in no event using less than reasonable efforts.
The Seller shall not use, sell, transfer, publish, disclose or otherwise make available any of the
Confidential Information to any third party. If the Seller is compelled by a duly authorized
subpoena, court order or government authority to disclose any of the Confidential Information, the
Seller shall immediately notify the Purchaser of same prior to disclosure, and fully cooperate with
the appropriate party in seeking a protective order or other appropriate remedy prior to
disclosure.
3.22
Contracts
.
(a)
Schedule 3.22(a)
sets forth a list of all Contracts to which the Seller is a party
or by which the Seller, the Vault Business or any of the Assets is bound as of the date hereof
including:
(1) any Contract for the Sellers provision of engineering or other services related to the
Vault Business;
(2) any continuing Contract for management or consulting services or services of independent
contractors or subcontractors;
(3) any Contract that expires more than one year after the date of this Agreement and any
Contract that may be renewed at the option of any person other than the Seller so as to expire more
than one year after the date of this Agreement;
(4) any trust indenture, mortgage, promissory note, loan agreement or other Contract for the
borrowing of money, any currency exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance with GAAP;
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(5) any Contract for capital expenditures in excess of $5,000 in the aggregate;
(6) any Contract limiting the freedom of the Seller to engage in any line of business or to
compete with any other Person, or any confidentiality, secrecy or non-disclosure contract or any
contract that may be terminable as a result of the Sellers status as a competitor of any party to
such contract;
(7) any Contract pursuant to which the Seller is a lessor of any Tangible Personal Property,
pursuant to which payments in excess of $5,000 remain outstanding;
(8) any Contract with an affiliate;
(9) any agreement of guarantee, support, indemnification, assumption or endorsement of, or any
similar commitment with respect to, the Liabilities of any other Person other than customary
customer agreements made in the ordinary course of the Vault Business;
(10) any employment Contract, arrangement or policy (including any collective bargaining
contract or union agreement) that may not be immediately terminated without financial notifications
or penalty (or any augmentation or acceleration of benefits);
(11) any Contract providing for a joint venture or partnership with any other Person;
(12) any oral contract, true and correct summaries of which have been provided to the Seller;
and
(13) any Contract that is otherwise in any way material to the Assets and/or the Vault
Business and is not described in any of the categories specified in this
Section 3.22(a)
.
(b) The Seller has performed all of the obligations required to be performed by it and is
entitled to all benefits under, and is not alleged to be in default in respect of any Assigned
Contract. Each of the Assigned Contracts is valid and binding and in full force and effect, and
except as disclosed on
Schedule 3.22(b)
, there exists no default or event of default or
event, occurrence, condition or act, with respect to the Seller, or with respect to the other
contracting party, that, with the giving of notice, the lapse of time or the happening of any other
event or condition, would become a default or event of default under any Assigned Contract. The
Seller has not received written or oral notice of cancellation, modification or termination of any
Assigned Contract. Seller does not have actual or constructive notice that one or more of the
parties to any Assigned Contract intends to terminate or alter the provisions thereof by reason of
the transactions contemplated hereby. Since the date of the latest balance sheet of the Seller
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contained in the Financial Statements, except as set forth on
Schedule 3.22(b)
, the Seller
has not waived any right under any Assigned Contract, amended or extended any Assigned Contract or
failed to renew (or received notice of termination or failure to renew with respect to) any
Assigned Contract. True, correct and complete copies of all Assigned Contracts have been delivered
to the Purchaser.
(c)
Schedule 3.22(a)
denotes with an asterisk all of the Contracts (if any) that will
be Excluded Contracts.
(d) Except as expressly designated on
Schedule 3.22(a)
, none of the Assigned Contracts
was awarded to the Seller as a result of (in whole or in part) the Sellers status as a
minority-owned or disadvantaged business or similar status.
(e) All of the Assigned Contracts may be assigned to the Purchaser without obtaining the
consent of any party thereto, other than to the extent specifically set forth on
Schedule
3.22(e)
.
3.23
Taxes and Tax Returns
.
(a) Except as set forth on
Schedule 3.23
:
(1) The Seller has timely filed or timely requested extensions to file those Tax Returns that
are currently due or, if not yet due, will timely file or timely request extensions to file all Tax
Returns required to be filed by it for all taxable periods ending on or before the Closing Date and
all such Tax Returns are, or will be when filed, true, correct and complete. Copies of all such
Tax Returns for the periods ending on or after December 31, 2004 have been given to the Purchaser;
(2) The Seller has paid to the appropriate Governmental Authority, or, if payment is not yet
due, will pay, to the appropriate Governmental Authority, or has established, in accordance with
GAAP and consistent with past practice, accruals that are reflected on the Sellers financial
statements (as provided to the Purchaser hereunder) for the payment of all Taxes imposed on the
Seller or for which the Seller could be liable, whether to taxing authorities or to other persons
(pursuant to a tax sharing agreement or otherwise) for all taxable periods beginning on or before
the Closing Date;
(3) No extension of time has been requested or granted for the Seller to file any Tax Return
that has not yet been filed or to pay any Tax that has not yet been paid;
(4) The Seller has not received notice of a determination by a Governmental Authority that
Taxes are owed by the Seller (such determination to be referred to as a
Tax Deficiency
) that has
not been resolved as of the date of Closing and, to the Sellers Knowledge, no Tax Deficiency is
proposed or threatened;
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(5) All Tax Deficiencies have been paid or finally settled and all amounts determined by
settlement to be owed have been paid;
(6) Except in the case of a Lien for ad valorem property taxes not yet due and payable, there
is no unpaid Tax (a) that constitutes a Lien upon any of the Assets or (b) for which the Purchaser
would be liable under applicable Law by reason of having acquired the Assets;
(7) There are no presently outstanding waivers or extensions or requests for waiver or
extension of the time within which a Tax Deficiency may be asserted or assessed;
(8) No issue has been raised in any examination, investigation, audit, Claim or proceeding
relating to Taxes (a
Tax Audit
) which, by application of similar principles to any past, present
or future period, would result in a Tax Deficiency for such period and no Claim has ever been made
by a Governmental Authority in a jurisdiction where the Seller does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction;
(9) There are no pending or, to the Sellers knowledge, threatened, Tax Audits of the Seller;
(10) There are no requests for rulings in respect of any Tax pending between the Seller and
any Governmental Authority;
(11) The Seller has complied with all applicable Laws relating to the withholding and payment
of Taxes and has timely withheld and paid to the proper Governmental Authorities all amounts
required to have been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor or shareholder;
(12) The Seller has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Code;
(13) After the date hereof, no election with respect to Taxes will be made without the written
consent of the Purchaser other than those elections that would not have a material adverse effect
and that are consistent with past practices of the Seller;
(14) None of the Assets of the Seller is property that it is required to be treated as being
owned by any other person pursuant to the safe harbor lease provisions of former Section
168(f)(8) of the Code;
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(15) None of the Assets of the Seller directly or indirectly secures any debt, the interest on
which is tax-exempt under Section 103(a) of the Code;
(16) None of the Assets of the Seller is tax-exempt use property within the meaning of
Section 168(h) of the Code;
(17) The Seller does not have, and has not had, a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the United States and such
foreign country;
(18) The Seller is not a party to any Tax allocation or Tax sharing agreement; and
(19) The Acquisition is not subject to Tax withholding provisions of the Code.
(b)
Schedule 3.23
contains: (1) a schedule of the filing dates of all Tax Returns
required to be filed by the Seller; (2) a description of all past Tax Audits involving the Seller;
(3) a list of all elections made by the Seller relating to Taxes, including whether the Seller has
made an election pursuant to Section 754 of the Code; and (4) a list of the states, territories and
jurisdictions (whether foreign or domestic) to which any Tax is properly payable by the Seller.
Except as set forth on
Schedule 3.23
, the Seller has retained all supporting and backup
papers, receipts, spreadsheets and other information necessary for: (A) the preparation of all Tax
Returns that have not yet been filed; and (B) the defense of all Tax Audits involving taxable
periods either ending on or during the six years prior to the Closing Date or from which there are
unutilized net operating loss, capital loss or investment tax credit carryovers.
(c) The Seller has collected and remitted to the appropriate Governmental Authority all sales
and use or similar Taxes required to have been collected, including any interest and any penalty,
addition to tax or additional amount unpaid, and has been furnished properly completed exemption
certificates for all exempt transactions. The Seller has collected and/or remitted to the
appropriate Governmental Authority all property Taxes, customs duties, fees, and assessments which
are other than in the nature of income taxes or charge of any kind whatsoever (including Taxes
assessed to real property and water and sewer rents relating thereto), including any interest and
any penalty, addition to tax or additional amount unpaid.
3.24
Solvency
.
No insolvency proceeding of any character including bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting, the Seller (other
than as a creditor) or any of the Assets are pending or are being contemplated by the Seller, or
are being threatened against the Seller by any other Person, and the Seller has not made any
assignment for the benefit of creditors or taken any action in contemplation of which
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that would constitute the basis for the institution of such insolvency proceedings.
Immediately after giving effect to the consummation of the transactions contemplated hereby, the
Seller will be able to pay the Excluded Liabilities as they become due; (b) the value of the
remaining assets (if any) of the Seller (calculated at fair market value) will exceed the Excluded
Liabilities; and (c) taking into account all pending and threatened litigation, final judgments
against the Seller in actions for money damages are not reasonably anticipated to be rendered at a
time when, or in amounts such that, the Seller will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum probable amount of such
judgments in any such actions and the earliest reasonable time at which such judgments might be
rendered) as well as all other obligations of the Seller.
4. COVENANTS OF THE SELLER AND THE SHAREHOLDERS.
The Seller and the Shareholders hereby covenant and agree as follows:
4.1
Full Cooperation; Access to Information
.
The Seller and the Shareholders shall cooperate in good faith with Purchaser in causing the
transactions that are the subject of this Agreement to be consummated. Seller shall permit
Purchaser and its counsel, accountants, employees and other representatives, prior to Closing, to
make such investigations of Sellers business, operations, assets, employees, contracts, books,
records and financial information, all as Purchaser deems necessary or advisable in the conduct of
its due diligence investigation into Sellers business, operations and assets. Seller shall give
to Purchaser and its counsel, accountants, employees and other representatives access, to the
fullest extent possible without unreasonably interfering with Sellers business operations, to all
of Sellers personnel, properties, books, contracts, commitments and records, and will promptly
furnish to Purchaser copies of all such documents and records and information with respect to
Sellers affairs as Purchaser may from time to time in the exercise of its sole and absolute
discretion request. Purchaser shall not be under any obligation to continue with its due diligence
investigation if, at any time, the results of its due diligence investigation are not fully
satisfactory to it for any reason in its sole discretion.
4.2
No Inconsistent Action
.
Neither the Seller nor the Shareholders will take any action which is inconsistent with or
impairs the consummation of the transactions contemplated by this Agreement or which would make
inaccurate the representations or warranties made by the Shareholders or the Seller herein.
4.3
Non-Solicitation
.
In consideration of the expense and effort that will be expended by Purchaser in its due
diligence investigation, neither the Shareholders nor the Seller, nor their affiliates will,
directly, indirectly or otherwise, solicit or entertain offers from, negotiate with or in any
manner
-31-
encourage, discuss, entertain, accept or consider any proposal of any other person or entity
relating to a disposition (directly or indirectly) of all or any portion of the Assets of the
Seller, the stock of either Seller, or a merger involving either Seller, or the issuance of any
shares of or other equity securities of either Seller, other than as contemplated pursuant to
Section 3.17(e) hereof, at any time during the term of this Agreement, or to raise funds in the
form of debt or equity for use in the Vault Business, until the earlier to occur of March 1, 2006,
or, if applicable, the termination of this Agreement.
4.4
[Reserved]
.
4.5
Prohibited Actions Pending Closing
.
Unless otherwise provided for herein or approved by Purchaser in writing, from the date hereof
until the Closing Date, the Seller and the Shareholders shall cause the Seller not to do or enter
into the following:
(a) amend or otherwise change its Articles of Incorporation, By-Laws or other organizational
documents;
(b) issue or sell, authorize for issuance or sale, grant any options or make any other
agreements with third parties with respect to the Sellers stock, other than to the extent
specifically contemplated by
Section 3.17(e)
hereof;
(c) authorize or incur any additional debt for money borrowed, or incur any additional debt,
liability or obligation, other than in favor of Purchaser;
(d) mortgage, pledge or subject to Lien or other encumbrance any of its properties or assets,
or agree to do so;
(e) sell or otherwise dispose of, or agree to sell or dispose of any of its assets or
properties;
(f) amend or terminate any lease, contract, undertaking or other commitment listed in any of
the disclosure schedules annexed hereto to which it is a party, or to take action or fail to take
any action, constituting any event of default thereunder;
(g) assume, guarantee or otherwise become responsible for the obligations of any other party
or agree to do so;
(h) make any change in accounting methods or principles;
(i) compromise or settle any material Claim, other than with the consent of the Purchaser;
-32-
(j) acquire the capital stock or other ownership interests of any other entity or acquire all
or substantially all of the assets of another entity;
(k) take any action prior to the Closing Date which would breach any of the representations
and warranties contained in this Agreement;
(l) take any action or omit to take any action if taking or omitting to take such action could
have a Material Adverse Effect, as defined in
Section 8.5
hereof, or
(m) agree to take any of the actions described in this
Section 4.5
.
4.6
Conduct of Business Pending Closing
.
From the date hereof until the Closing Date, the Seller and the Shareholders covenant and
agree to cause the Seller to:
(a) maintain its existence in good standing;
(b) maintain proper business and accounting records;
(c) maintain all insurance on the Assets in effect on the date of this Agreement; and
(d) continue to diligently operate its business in the ordinary course.
4.7
Change of Corporate Name
.
Immediately subsequent to the Closing, the Seller acknowledges and agrees that each Seller
shall change its name to something that does not contain the phrase BigVault or any derivation
thereof, and thereafter neither the Seller, the Shareholders nor any affiliate shall use such name
or any confusingly similar name at any time subsequent to the Closing.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to the Seller and the Shareholders, that the
following representations and warranties are true and correct in all material respects on the date
hereof and will be true and correct in all material respects on and as of the Closing Date:
5.1
Organization and Good Standing
.
Purchaser is a corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland and has full power to carry on its business as it is now being
conducted and to own or hold under lease the properties it now owns or holds under lease.
-33-
5.2
Authority
.
Purchaser has full power and authority to enter into this Agreement. Purchaser and its
members, officers and directors have taken all action necessary to authorize the execution,
delivery and performance of this Agreement, the completion of the transactions contemplated hereby
and the execution and delivery of any and all instruments necessary or appropriate to effectuate
fully the terms and conditions of this Agreement. This Agreement has been properly executed and
delivered by Purchaser and (assuming the due authorization, execution and delivery thereof by the
Seller and the Shareholders) constitutes the valid and legally binding obligation of Purchaser and
is enforceable against Purchaser in accordance with its terms.
5.3
No Conflict
.
Neither the execution and delivery of this Agreement nor the carrying out of the transactions
contemplated hereby will result in any violation, termination or modification of, or conflict with,
the articles of organization or by-laws of Purchaser or any of the contracts or other instruments
to which Purchaser is a party, or of any judgment, decree or order applicable to Purchaser.
6. INDEMNIFICATION AND SURVIVAL.
6.1
Indemnification by the Seller and the Shareholders
. The Seller and the
Shareholders hereby covenant and agree to jointly and severally indemnify and hold harmless the
Purchaser and its respective successors and assigns, at all times from and after the date of
Closing, against and in respect of the following:
(i) any damage or loss resulting from any misrepresentation, breach of warranty or
breach or non-fulfillment of any agreement or covenant on the part of the Seller or either
Shareholder under this Agreement, the Intellectual Property Assignments, the Non-Competition
Agreements or any Employment Agreement, or from any inaccuracy or misrepresentation in or
omission from any certificate or other instrument or document furnished or to be furnished
by or on behalf of the Seller or the Shareholders at Closing;
(ii) any and all losses, interest, penalties, attorneys fees, and expenses resulting
from or associated in any way with the Excluded Liabilities;
(iii) any and all losses, interest, penalties, attorneys fees and expenses arising
from or associated in any way with the waiver of bulk sales compliance pursuant to
Section 10.13
hereof; and
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(iv) all Claims, assessments, judgments, costs, reasonable attorneys fees and expenses
of any nature incident to any of the matters indemnified against pursuant to this
Section 6.1
, including, without limitation, all such costs and expenses incurred in
the defense thereof or in the enforcement of any rights of the Purchaser hereunder.
The parties hereto hereby acknowledge and agree that the Contingent Payment Escrow Agreement
will provide that funds held in the Contingent Payment Escrow will be the first (but not the sole)
source of satisfaction of the indemnification obligation of the Seller and the Shareholders
hereunder.
6.2
Indemnification by Purchaser
. The Purchaser hereby covenants and agrees to
indemnify and hold harmless the Seller and the Shareholders and their respective successors and
assigns, at all times from and after the date of Closing against and in respect of the following:
(i) any damage or loss resulting from any misrepresentation, breach of warranty or
breach or non-fulfillment of any agreement or covenant on the part of the Purchaser under
this Agreement, or from any inaccuracy or misrepresentation in or omission from any
certificate or other instrument or document furnished or to be furnished by the Purchaser at
Closing; and
(ii) all Claims, assessments, judgments, costs, reasonable attorneys fees and expenses
of any nature incident to any of the matters indemnified against pursuant to this
Section 6.2
, including, without limitation, all such costs and expenses incurred in
the defense thereof or in the enforcement of any rights of the Seller or the Shareholders
hereunder.
6.3
Notice and Defense
. If at any time a party entitled to indemnification hereunder
(the
Indemnitee
) shall receive notice from any third party of any asserted liability, damage,
loss or expense (together, a
Loss
) claimed to give rise to indemnification hereunder, the
Indemnitee shall promptly give notice thereof (
Claims Notice
) to the party obligated to provide
indemnification (the
Indemnitor
) of such Loss. The Claims Notice shall set forth a brief
description of the Loss, and, if known or reasonably estimable, the amount of the Loss that has
been or may be suffered by the Indemnitee. Thereafter, the Indemnitor shall have, at its election,
the right to compromise or defend any such matter at the Indemnitors sole cost and expense through
counsel chosen by the Indemnitor and approved by the Indemnitee (which approval shall not
unreasonably be withheld); provided, however, that (i) Indemnitor provides evidence reasonably
satisfactory to Indemnitee that Indemnitor has the financial wherewithal (including but not limited
to funds available in the Contingent Payment Escrow) to satisfy and discharge the Loss in full, and
(ii) any such compromise or defense shall be conducted in a manner which is reasonable and not
contrary to the Indemnitees interests, and the Indemnitee shall in all events have a right to veto
any such compromise or defense which is unreasonable or which would jeopardize in any material
respect any assets or business of the Indemnitee or any of its affiliates or increase the potential
liability of, or create a new liability for, the Indemnitee
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or any of its affiliates and, provided further that the Indemnitor shall in all events indemnify
the Indemnitee and its affiliates against any damage resulting from the manner in which such matter
is compromised or defended, including any failure to pay any such claim while such litigation is
pending. In the event that the Indemnitor does so undertake to compromise and defend a claim, the
Indemnitor shall notify the Indemnitee of its intention to do so. Each party agrees in all cases
to cooperate with the defending party and its counsel in the compromise of or defending of any such
liabilities or claims. In addition, the nondefending party shall at all times be entitled to
monitor such defense through the appointment, at its own cost and expense, of advisory counsel of
its own choosing.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE SHAREHOLDERS.
The obligations of the Seller and the Shareholders under this Agreement are subject only to
the delivery by Purchaser to the Escrow Agent of the Agreed Liabilities Amount, the delivery of the
documents described in
Section 2.3(b)
hereof and the satisfaction of the condition set
forth below, as Section 7.1:
7.1 Each of the representations and warranties of the Purchaser contained herein and in any
other agreements or instruments provided for herein shall have been true and correct in all
material respects on the date hereof, and shall be true and correct in all material respects for
that period of time between the signing hereof and the Closing Date, and as of the Closing Date as
though made on and as of such date. Purchaser shall deliver to Seller and the Shareholders a
certificate to such effect at the Closing as to the representations and warranties of the
Purchaser.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to proceed to Closing under this Agreement are subject to the
fulfillment (or, at the option of Purchaser, the waiver) at or prior to the Closing Date of each of
the following conditions:
8.1
Accuracy of Representations and Warranties
.
Each of the representations and warranties of the Seller and the Shareholders contained herein
and in any other agreements or instruments provided for herein shall have been true and correct in
all material respects on the date hereof, and shall be true and correct in all material respects
for that period of time between the signing hereof and the Closing Date, and as of the Closing Date
as though made on and as of such date. Each of Seller and the Shareholders shall deliver to
Purchaser a certificate to such effect at the Closing as to the representations and warranties of
the Seller and the Shareholders.
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8.2
Performance of Agreements
.
The Shareholders and the Seller shall have performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be performed or complied
with by them at or prior to the Closing.
8.3
No Action or Proceeding
.
No claim, action, suit, investigation or other court proceeding shall be pending or threatened
before any court or governmental agency which presents a risk of the restraint or prohibition of
the transactions contemplated by this Agreement or the obtaining of material damages or other
relief in connection therewith.
8.4
Consents and Actions; Contracts
.
All requisite regulatory and/or other consents and approvals of third parties, including but
not limited to those set forth on
Schedule 3.2
or
Schedule 3.22(e)
, shall have been
obtained and completed. The Seller and the Shareholders shall have provided Purchaser with
evidence satisfactory to Purchaser in its sole and absolute discretion that (i) there are no
applicable rights of first refusal, rights of first negotiation, rights of first offer or similar
rights of any kind that would require Seller or the Shareholders to provide any third party with
notice, an opportunity to discuss, consent, negotiate or to engage in any of the transactions
contemplated hereby prior to consummation by Seller and the Shareholders hereof; or (ii) that any
and all such rights (including any such rights in favor of Vaultrx and Spiderboy) have been waived
by the party possessing such rights.
8.5
No Material Adverse Changes
.
There shall not have been any Material Adverse Change in the business, assets or prospects of
the Seller since January 1, 2005. For purposes of this Agreement,
Material Adverse Change
or
Material Adverse Effect
means any change or effect that is or, so far as can reasonably be
determined, is reasonably likely to be materially adverse to the Vault Business, its prospects or
the Assets.
8.6
Satisfactory Due Diligence Review
.
The Purchaser shall have completed its due diligence investigation into the business,
operations and assets of the Seller, the Assets and the Vault Business and determined in the
exercise of its sole and absolute discretion that it is satisfied with the results of such
investigation. If the Purchaser is not satisfied at any time with the results of such
investigation, for any reason or no reason at all, it shall have the option to terminate this
Agreement, without any liability whatsoever to the Seller, the Shareholders or any other party,
upon written notice to the Seller and the Shareholders. The Seller and the Shareholders hereby
acknowledge and agree that, notwithstanding the Purchasers due diligence investigation, Purchaser
is relying upon the
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representations and warranties made by the Seller and the Shareholders herein as a material
inducement to the consummation of the transactions described herein, and Purchasers due diligence
investigation shall in no way undermine or diminish the representations and warranties made by the
Seller and the Shareholders or the Purchasers reliance thereon.
8.7
Ordinary Course of Business
.
The Seller shall have operated the Vault Business in a manner consistent with past practice
and shall not have made any payments outside the ordinary course of its business.
8.8
Agreed Liabilities Amount
.
The Seller shall have provided Purchaser with an updated
Schedule 2.2(b)(2)
reflecting
a total amount needed to satisfy all of the Creditors (other than the Minor Creditors) in full of
$1,500,000 or less, together with evidence satisfactory to Purchaser in its sole and absolute
discretion that payment of the Agreed Liabilities Amount to each of the Creditors (other than the
Minor Creditors) in the amount set forth on such updated
Schedule 2.2(b)(2)
with respect to
each Creditor (other than the Minor Creditors) shall be sufficient in all respects to satisfy fully
and discharge all Liabilities of Seller (other than Liabilities owed to Minor Creditors) and in all
events to enable Seller to transfer title to the Assets to the Purchaser at the Closing free and
clear of any and all Liens.
8.9
Opinion of Counsel Regarding Due Authorization
.
The Seller shall have provided Purchaser with an opinion of counsel to the Seller that (i) the
Seller and the Shareholders have full power to enter into and to carry out the terms of this
Agreement; (ii) each Seller and its directors and shareholders have taken all action, corporate and
otherwise, necessary to authorize the execution, delivery and performance of this Agreement, the
completion of the transactions contemplated hereby and the execution and delivery of any and all
instruments necessary or appropriate to effectuate fully the terms and conditions of this
Agreement; (iii) any consent or approval of any court, governmental agency, other public authority
or third party that is required as a condition to (a) the authorization, execution, delivery and
performance of this Agreement or any other instruments necessary to effectuate this Agreement; or
(b) the consummation by the Seller of the transactions contemplated herein has been obtained; and
(iv) this Agreement has been properly executed and delivered by the Shareholders and the Seller and
constitutes the valid and legally binding obligation of the Shareholders and the Seller and is
enforceable against the Shareholders and the Seller in accordance with its terms.
8.10
Evidence of Resolution of Litigation
.
The Seller shall have provided Purchaser with evidence satisfactory to Purchaser in its sole
and absolute discretion that all pending or threatened suits, actions, proceedings or litigation
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pending against the Seller have been fully and finally resolved or adjudicated, as the case
may be.
8.11
Termination of Contracts
.
The Seller shall have provided Purchaser with evidence satisfactory to Purchaser in its sole
and absolute discretion that each of the following contracts has been terminated: (i) that certain
Technology Licensing and Consulting Agreement dated
by and between BVST and BVI (the
Intercompany License Agreement
); (ii) the employment agreements to which BVST or BVI or any
employee of either BVST or BVI is a party; and (iii) those contracts identified in
Exhibit
8.11
attached hereto.
8.12
Delivery of Ancillary Agreements
.
The Seller and the Shareholders shall have furnished to Purchaser fully executed
Non-Competition Agreements, Employment Agreements and Intellectual Property Assignments in
accordance with
Section 2.3
hereof.
8.13
Delivery of Lease Agreement
.
The Seller and the Shareholders shall have furnished to Purchaser a fully executed assignment
of Lease and consent of Landlord pursuant to
Section 2.3(c)(xiii)
hereof, a consent of the
Landlord to the sublease of space to Total Computer Care, and a sublease to Total Computer Care,
each in such form as satisfactory to Purchaser in its sole and absolute discretion.
8.14
Other Evidence
.
The Seller and the Shareholders shall have furnished to Purchaser such further certificates
and documents evidencing their due action in accordance with this Agreement as Purchaser shall
reasonably request.
9. TERMINATION.
This Agreement may be terminated only as follows:
(a) At any time upon the mutual written consent of the parties hereto;
(b) At any time prior to the Closing by Purchaser by written notice to the Seller and the
Shareholders if Purchaser is not satisfied for any reason with its due diligence review; or
(c) Automatically and without further act if the Closing has not occurred on or prior to
December 31, 2005, as such date may have been extended by the mutual written consent of the parties
hereto.
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In the event of the default by the Seller or the Shareholders hereunder or the breach by the
Seller or the Shareholders of any representation, warranty or covenant contained in this Agreement,
Purchaser shall have all rights available to it at law and/or in equity, including but not limited
to the right to specific performance, notwithstanding the termination of the Agreement in
accordance with this
Section 9
.
10. CERTAIN CASH ADVANCES
Prior to the date hereof, Purchaser has made available $275,000 of bridge financing to the
Seller, $200,000 of which is currently characterized as Advance Fees (as such term is defined in
the License Agreement) under the License Agreement, and $75,000 of which is reflected pursuant to
that certain Promissory Note of even date herewith by Seller in favor of Purchaser. The parties
hereto hereby contemplate that, from and after the date hereof and prior to the Closing Date,
Purchaser may continue to make additional bridge financing available to the Seller, although
Purchaser shall have no obligation to do so. If the transaction that is the subject of this
Agreement proceeds to Closing, all such advances (including the above-described $200,000 and
$75,000, and all additional advances made subsequent to the date hereof) shall be repaid by Seller
in the manner contemplated by
Section 2.2(c)(6)
hereof. If the transaction that is the
subject of this Agreement does not proceed to Closing on or prior to December 31, 2005 (as such
date may be extended by the mutual, written agreement of the parties hereto), then the Seller shall
be obligated to repay all such advances (other than the above-described $200,000) pursuant to the
provisions of such Promissory Note. The provisions of this Section 10 shall survive any
termination of this Agreement.
11. MISCELLANEOUS.
11.1
Expenses
.
Each party to this Agreement shall pay all of its own closing costs and other expenses
relating hereto, including fees and disbursements of its counsel and accountants, whether or not
the transactions contemplated hereby are consummated.
11.2
Taxes
.
The Shareholders and the Seller shall bear any and all Taxes of any nature or type whatsoever
that may become due and payable as a result of the consummation of the transactions contemplated
hereby, and the Shareholders and the Seller shall jointly and severally indemnify and hold
Purchaser harmless with respect thereto.
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11.3
Notices
.
All notices and other communications hereunder or in connection herewith shall be in writing
and delivered as follows:
If to the Seller or the Shareholders, to:
c/o Mr. John Salerno
bigVault Storage Technologies, Inc.
47 Mall Drive
Commack, NY 11725
with a copy to:
Mark X. LoPresti, Esq.
Lederer, Nojima, Tagliaferro, LoPresti & Blakely, LLP
32 Old Slip, 5
th
Floor
New York, New York 10005
If to Purchaser, to:
Digi-Data Corporation
8920-D Route 108
Columbia, Maryland 21045
Attn: Dennis Cindrich
With a copy to:
Jordan I. Bailowitz, Esquire
DLA Piper Rudnick Gray Cary US LLP
6225 Smith Avenue
Baltimore, Maryland 21209-3600
Except as otherwise specifically provided herein, all notices, requests, instructions and
demands which may be given by any party hereto to any other party in the course of the transactions
herein contemplated shall be in writing and shall be served by express mail through the U.S. Postal
Service or similar expedited overnight commercial carrier. Service of such notices, demands and
requests shall be presumed to have occurred on the date that is one (1) day after the date upon
which the item was delivered to the U.S. Postal Service or similar expedited overnight commercial
carrier, provided the item was properly addressed, all postage and shipping charges were prepaid by
the sender and the commercial carrier issued a dated receipt to the sender acknowledging the
commercial carriers receipt of the item. All such
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notices, demands and requests shall be addressed as set forth above. Any party may change the
address at which it is to receive notice by like written notice to all other parties hereunder.
11.4
Entire Agreement
.
This Agreement (including the exhibits hereto and the lists, schedules and documents delivered
pursuant hereto, which are a part hereof) is intended by the parties to and does constitute the
entire agreement of the parties with respect to the transactions contemplated by this Agreement.
This Agreement supersedes any and all prior understandings, written or oral, between the parties,
including but not limited to that certain Strategic Alliance and License Agreement by and between
Purchaser and BVST dated August 31, 2005 (the
License Agreement
), which shall be deemed
terminated as of the Closing Date, and this Agreement may be amended, modified, waived, discharged
or terminated only by an instrument in writing signed by the party against which enforcement of the
amendment, modification, waiver, discharge or termination is sought.
11.5
Severability
.
If any provision of this Agreement shall be declared by any court of competent jurisdiction
illegal, void or unenforceable, the other provisions shall not be effected, but shall remain in
full force and effect.
11.6
Modification and Amendment
.
This Agreement may not be modified or amended except by an instrument in writing duly executed
by the parties hereto, and no waiver of compliance of any provision or condition hereof and no
consent provided for herein shall be effective unless evidenced by an instrument in writing duly
executed by the party hereto seeking to be charged with such waiver or consent.
11.7
Time of the Essence
.
Time is of the essence in every provision of this Agreement where time is a factor.
11.8
Governing Law; Jurisdiction; Exclusive Venue
.
(a)
Governing Law
. This Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland, exclusive of the choice of law rules thereof.
(b)
Exclusive Venue
. The parties hereto agree that exclusive venue for any
litigation, action or proceeding arising from or relating to this Agreement shall lie in the
Circuit Court in and for Baltimore County, Maryland or, if federal diversity jurisdiction then
exists, in
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the United States District Court for the District of Maryland and each of the parties hereto
expressly waives any right to contest such venue for any reason whatsoever.
(c)
Waiver of Trial By Jury
. EACH OF THE PARTIES HERETO EXPRESSLY WAIVES THE RIGHT TO
A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION, ACTION OR PROCEEDING RELATING TO OR ARISING OUT OF
THIS AGREEMENT.
11.9
Specific Performance
.
The parties hereto recognize that if the Shareholders and/or the Seller do not perform under
the provisions of this Agreement or any other agreements or instruments provided for in this
Agreement, then monetary damages alone would not be adequate to compensate the Purchaser for its
injury. The Purchaser shall therefore be entitled, in addition to any remedies that may be
available at law or in equity including, without limitation, monetary damages, to obtain specific
performance of the obligations of the Seller or the Shareholders. If any action is brought by the
Purchaser to specifically enforce this Agreement or any other agreements or instruments provided
for herein, the Shareholders and the Seller shall waive the defense that there is an adequate
remedy at law.
11.10
Binding Effect
.
This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, legatees, beneficiaries, personal representatives and other legal
representatives and assigns, as the case may be. This Agreement may not be assigned by any party
hereto without the prior written consent of each other party hereto;
provided, however
, that (i)
the Purchaser may assign its rights and obligations hereunder to any affiliate of the Purchaser,
(ii) the Seller may assign its rights to receive the Contingent Payments, subject in all respects
to the provisions of
Sections 2.2(c)(5)
,
2.2(c)(6)
, and
2.2(e
), to any
party without the requirement of the consent of the Purchaser. Other than as set forth above, no
other rights of Seller hereunder may be assigned without the prior written consent of the
Purchaser, which the Purchaser may grant or withhold in the exercise of its sole and absolute
discretion.
11.11
Enumerations and Headings
.
The enumerations and headings contained in this Agreement are for convenience of reference
only and shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provision or the scope or intent of this
Agreement, or in any way effect this Agreement.
11.12
Counterparts
.
This Agreement may be signed in two or more counterparts, all of which taken together shall be
deemed to constitute one original Agreement.
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11.13
Waiver of Bulk Sales Compliance
. Each of the parties hereto waives compliance
with any applicable bulk sales or similar provisions, provided however, that the Shareholders and
the Seller hereby jointly and severally agree to indemnify and hold harmless Purchaser from and
against any and all losses, expenses, claims, liabilities or attorneys fees arising as a result of
such waiver.
11.14
Disclosure
. The parties hereto will consult with each other and reach mutual
agreement before issuing any press release or otherwise making any statement or disclosure, oral or
written, with respect to this Agreement or the transactions contemplated hereby; provided, however,
that each party will be permitted to make, without the agreement of the other, such disclosures to
the public or to governmental entities as that partys counsel reasonably deems necessary to
maintain compliance with applicable laws. Except as provided above, the existence and/or contents
of this Agreement shall not be disclosed by the Shareholders or the Seller without the Purchasers
prior written consent.
11.15
Confidentiality
. Except as required by law or to carry out the transactions
contemplated by this Agreement (the
Transactions
), neither the Seller, the Shareholders nor the
Purchaser, nor the employees, attorneys, accountants and other agents and representatives of any of
the foregoing (collectively,
Representatives
) will disclose or use any Confidential Information
(as defined below), whether already furnished or to be furnished in the future to any party hereto
or their Representatives in any manner other than in connection with the evaluation and negotiation
of the transactions proposed in this Agreement once executed and delivered. For purposes of this
Agreement,
Confidential Information
means the existence and terms of this Agreement and any
information regarding Purchaser, the Seller or the Shareholders, their affiliates or the
Transactions. Confidential Information does not include information that a party to this Agreement
can demonstrate (i) is generally available to or known by the public other than as a result of
improper disclosure; (ii) is obtained by the disclosing party from a source other than the other
party or its Representatives; or (iii) was in the possession of the other party prior to the date
hereof other than as a result of improper disclosure and was obtained other than in connection with
consideration of the transactions set forth in this Agreement, provided that such source was not
bound by a duty of confidentiality with respect to such information. Upon the written request of
any party, the other party will promptly return any Confidential Information in its possession or
in the possession of its Representatives.
11.16
Survival
. All representations and warranties made by the parties in this
Agreement and in any other certificates and documents delivered in connection herewith shall
survive the Closing.
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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase Agreement under seal
on the date first above written.
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WITNESS:
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PURCHASER:
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DIGI-DATA CORPORATION,
a Maryland corporation
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By:
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(SEAL)
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Name:
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Title:
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SELLER:
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BigVAULT STORAGE TECHNOLOGIES, INC.
a Delaware corporation
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By:
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(SEAL)
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Andrew Bello Jr.
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Name:
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John Salerno
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Title:
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President and CEO
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BIG VAULT, INC.,
a Nevada corporation
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By:
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(SEAL)
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Andrew Bello Jr.
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Name:
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John Salerno
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Title:
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President and CEO
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SHAREHOLDERS:
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(SEAL)
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Andrew Bello Jr.
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John Salerno
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(SEAL)
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Andrew Bello Jr.
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Elisa Salerno
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AMENDMENT TO ASSET PURCHASE AGREEMENT
AND CONTINGENT PAYMENT ESCROW AGREEMENT
THIS AMENDMENT TO ASSET PURCHASE AGREEMENT AND CONTINGENT PAYMENT ESCROW AGREEMENT
(
Amendment
) is dated March ___, 2008 by and among bigVAULT STORAGE TECHNOLOGIES, INC., a Delaware
corporation (
BVST
); BIG VAULT, INC., a Nevada corporation (
BVI
and, together with BVST, the
Seller
); JOHN SALERNO (
John
) and ELISA SALERNO (
Elisa
and, together with John, the
Shareholders
); DIGI-DATA CORPORATION, a Maryland corporation (
Purchaser
), and DLA PIPER US LLP
(the
Escrow Agent
).
Explanatory Statements:
A. Purchaser, Seller and the Shareholders are parties to that certain Asset Purchase Agreement
dated as of December 21, 2005, as amended by that certain Amendment dated February 23, 2006 (the
Original Purchase Agreement
), and Purchaser, Seller, the Shareholders and the Escrow Agent are
parties to that certain Contingent Payment Escrow Agreement dated February 23, 2006 (the
Original
Escrow Agreement
).
B. The parties hereto now desire to amend the Original Purchase Agreement and the Original
Escrow Agreement in the manner set forth herein.
NOW, THEREFORE, in consideration of the Explanatory Statements and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Purchaser, Seller, the
Shareholders and the Escrow Agent, intending to be legally bound, hereby amend the Original
Purchase Agreement and the Original Escrow Agreement as follows:
1.
Defined Terms
. Capitalized and undefined terms used herein shall have the meanings
given to them by the Original Purchase Agreement or the Original Escrow Agreement, as applicable.
2.
Partial Release of Escrow Fund
. Notwithstanding any provision of the Original
Purchase Agreement or the Original Escrow Agreement to the contrary, Sixty Seven Thousand Dollars
($67,000) of the Escrow Fund is hereby released to iGambit Inc., successor-in-interest to the
Seller, on the date hereof.
3.
Effect on Original Agreement; Integration
. Except as expressly amended by this
Amendment, the Original Purchase Agreement and the Original Escrow Agreement shall remain
unmodified and in full force and effect. The Original Purchase Agreement and the Original Escrow
Agreement, as amended by this Amendment, reflects the complete and exclusive agreement of the
parties with respect to the subject matter hereof, and merges and supersedes all prior discussions,
representations, negotiations and agreements with respect thereto.
4.
Counterparts
. This Amendment may be executed by facsimile in one or more
counterparts, each of which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Asset Purchase
Agreement and Contingent Payment Escrow Agreement, intending to be legally bound, as of the day and
year first above written.
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PURCHASER
:
DIGI-DATA CORPORATION
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By:
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(SEAL)
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Name:
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Dennis Cindrich
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Title:
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President & CEO
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SELLER
:
bigVAULT STORAGE TECHNOLOGIES, INC.
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By:
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(SEAL)
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Name:
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John Salerno
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Title:
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President & CEO
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BIG VAULT, INC.
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By:
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(SEAL)
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Name:
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John Salerno
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Title:
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President & CEO
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SHAREHOLDERS:
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John Salerno
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Elisa Salerno
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ESCROW AGENT
:
DLA PIPER US LLP
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By:
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Jordan I. Bailowitz, Esq.
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2
AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT TO ASSET PURCHASE AGREEMENT (
Amendment
) is made and entered into effective as
of February ______, 2006, between and among bigVAULT STORAGE TECHNOLOGIES, INC., a Delaware
corporation (
BVST
); BIG VAULT, INC., a Nevada corporation (
BVI
and, together with BVST, the
Seller
); JOHN SALERNO (
John
) and ELISA SALERNO (
Elisa
and, together with John, the
Shareholders
); and DIGI-DATA CORPORATION, a Maryland corporation (
Purchaser
).
Explanatory Statements:
A. Purchaser, Seller and the Shareholders entered into an Asset Purchase Agreement dated as of
December 21, 2005 (the
Original Agreement
) pursuant to which Purchaser agreed to purchase, and
Seller agreed to sell, all of the assets of the Purchaser (other than to the extent specified in
the Agreement), free and clear of all liens, liabilities and encumbrances.
B. Purchaser, Seller and the Shareholders now desire to amend the Original Agreement in the
manner set forth herein.
NOW, THEREFORE, in consideration of the Explanatory Statements and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Purchaser, Seller and
the Shareholders, intending to be legally bound, hereby agree to amend the Original Agreement as
follows:
1.
Defined Terms
. Capitalized and undefined terms used herein shall have the meanings
given to them by the Original Agreement.
2.
Post-Initial Investment Commitment Financing
. The final sentence of
Section
2.2(c)(4)
of the Original Agreement is deleted and the following is substituted in its place:
At any time after the Initial Investment Commitment has been satisfied, Seller may
propose to Purchaser alternative sources of debt and/or equity financing to fund the
continued operations of the Vault Business, and Purchaser shall consider such
proposals in good faith. Notwithstanding the foregoing, Purchaser shall have the
right to determine, in its sole and absolute discretion, whether or not to pursue
any such alternative sources of debt and/or equity or any other source of financing
with respect to the Vault Business, whether on terms more, less or equally favorable
to Purchaser or otherwise. Notwithstanding anything else to the contrary contained
herein, except for the Initial Investment Commitment, this
Section 2.2(c)(4)
shall not be deemed to impose (i) any obligation whatsoever on Purchaser to provide
any financing or invest any certain amount of time, money or effort with respect to
the Vault Business; (ii) any duties or obligations to Seller or the Shareholders
whatsoever with respect to the operation of the Vault Business or Purchasers other
business, all of which shall be conducted in the
exercise of Purchasers sole and
absolute discretion; and/or (iii) to seek or obtain any particular alternative
sources of financing or any other financing.
3.
No Assignment of Certain Agreements
. Notwithstanding
Section 3.22
,
Schedule 3.22(a)
and
Schedule 3.22(e)
of the Original Agreement, Purchaser, Seller
and the Shareholders agree that the following agreements shall not be assigned to Purchaser at the
Closing:
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(i)
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License and Distribution Agreement dated August 6, 2004 (the
StrorageCraft License
) by and between Seller and StorageCraft, Inc.;
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(ii)
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End User License Agreement from BrowserHawk (Cyscape); and
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(iii)
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Software License Agreement from Xythos Software, Inc. dated
September 30, 2002.
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Each of the Purchaser, Seller and Shareholder hereby covenants and agrees to cooperate in good
faith subsequent to the Closing in order to determine the manner in which to proceed with respect
to the StorageCraft License.
4.
Verizon Contract Related Matters.
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(i)
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Additional Representations of Seller and Shareholders
.
Seller and the Shareholders hereby jointly and severally represent and warrant
(i) that the representations and warranties contained in Section 3.22 of the
Original Agreement are true and correct in all material respects on the date
hereof, and will be true and correct in all material respects on and as of the
Closing Date, with respect to that certain Agreement for Reseller Services
dated August 11,2003 by and between Verizon Internet Services, Inc. and GTE.Net
LLC d/b/a/ Verizon Internet Solutions (the
Verizon Agreement
), and (ii) that
there are no Verizon Liabilities (as defined below) as of the date hereof and
will be no Verizon Liabilities on and as of the Closing Date.
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(ii)
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Assumption of Pre-Closing Liabilities
.
Notwithstanding
anything to the contrary contained in the Original Agreement, Purchaser hereby
covenants and agrees that it will assume, from and after the date of the
Closing, those liabilities of BVST arising from or relating to the Verizon
Agreement, to the extent that those liabilities accrued prior to the Closing
(the
Verizon Liabilities
).
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(iii)
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Indemnification by Seller and Shareholders
.
Notwithstanding the foregoing, each of the Seller and the Shareholders herby
jointly and severally covenant and agree to indemnify and hold Purchaser
harmless with respect to the Verizon Liabilities. If, subsequent to the
Closing, any Verizon Liability is asserted against Purchaser or any affiliate
thereof,
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then, notwithstanding any provisions of the original Agreement, as
amended by this Amendment, to the contrary, Purchaser shall be permitted to
pay, satisfy and discharge such Verizon Liability in any manner that
Purchaser determines, in its sole and absolute discretion, and such payment,
satisfaction, or discharge shall in no way undermine or diminish the
obligations of Seller and the Shareholders to indemnify Purchaser with
respect thereto. In additional, Purchaser shall be entitled to the remedy of
recoupment with respect to any such payment, satisfaction or discharge of
any Verizon Liability by Purchaser in accordance with the foregoing.
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(iv)
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Right of Set-Off
.
In addition to the rights and
remedies set forth elsewhere in the Original Agreement, as amended by this
Amendment, Purchaser shall have the right to set-off against any payment
otherwise due to Seller under the Original Agreement, as amended hereby, the
amount of loss, liability or damages (including reasonable attorneys fee and
expert fees) sustained by Purchaser due to the breach by the Seller and/or any
Shareholder of the representations and warranties set forth in
Section
4(i)
of this Amendment, or due to any default by the Seller and/or any
Shareholder under the Verizon Agreement.
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(v)
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Right to Make Claims Against Contingent Payment Escrow
Account
.
In addition to the rights and remedies set forth elsewhere in the
Original Agreement, as amended by this Amendment, Purchaser shall be entitled
to make claims for indemnity pursuant to the terms of that certain Contingent
Payment Escrow Agreement to be entered into between and among Seller, the
Shareholders and Purchaser in order to obtain the indemnification set forth in
Section 4(iii)
of this Amendment.
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5.
Termination
.
Section 9(c)
of the Original Agreement is amended and
restated in its entirety to read as follows:
(c) Automatically and without further act if the Closing has not occurred on
or prior to March 1, 2006, as such date may have been extended by the mutual written
consent of the parties hereto.
6.
Extension of Date for Repayment of Bridge Financing
. The final two (2) sentences
of
Section 10
of the Original Agreement are deleted and the following is substituted in its
place:
If the transaction that is the subject of this Agreement does not proceed to
Closing on or prior to March 1, 2006 (as such date may be extended by the mutual,
written agreement of the parties hereto), then the Seller shall be obligated to
repay all such advances (other than the above-described $200,000) pursuant to the
provisions of such Promissory Note. The provisions of this
Section 10
shall
survive any termination of this Agreement.
3
7.
Purchaser Election to Exit Vault Business
. The following new
Section 11
is
added to the Original Agreement in place of
Section 11
of the Original Agreement, and
Section 11
of the Original Agreement is renumbered as
Section 12
and all subsections
of
Section 11
are renumbered as the corresponding subsections of
Section 12
:
11. CERTAIN RIGHTS OF SELLER UPON PURCHASERS ELECTION TO EXIT VAULT BUSINESS.
11.1
Exit From Vault Business Without Sale to Third Party
.
If, within [
five (5)
] years from the date of this Agreement, Purchaser elects
(i) to exit the Vault Business subsequent to the Closing, but (ii) not to sell all
or any portion of the Vault Business to a third party, then Purchaser shall provide
written notice (the
Abandonment Notice
) to the Seller stating such election.
Subsequent to the provision of the Abandonment Notice, the Seller shall have the
right, but not the obligation, to purchase the Vault Business under the terms and
conditions of this
Section 11.1
. The right of the Seller to purchase the
Vault Business pursuant to this
Section 11.1
shall be exercisable by written
notice given to Purchaser not later than thirty (30) days after delivery of the
Abandonment Notice (the
Exercise Period
). The purchase price for the Vault
Business pursuant to this
Section 11.1
shall be equal to the sum, as of the
date prior to the Re-Purchase Closing, of (u) the Agreed Liabilities Amount, (v) the
amount of the Initial Investment Commitment funded by Purchaser, (w) the sum of the
Contingent Quarterly Payments made by Purchaser to Seller, (x) the sum of the
Additional Contingent Payments made by Purchaser to Seller, (y) the amount of any
investment in the Vault Business funded by Purchaser in excess of the Initial
Investment Commitment (if any), and (z) the then-remaining principal balance, and
all accrued and unpaid interest and other amounts due thereon, of any outstanding
loans made by the Purchaser to the Seller. The purchase price determined in
accordance with this
Section 11.1
(the
Re-Purchase Price
) shall be binding
and conclusive upon the parties hereto. The Seller shall pay the Re-Purchase Price
to Purchaser in full in cash upon the closing of such purchase (the
Re-Purchase
Closing
), which shall occur at a location determined by Purchaser not later than
thirty (30) days following determination of the Re-Purchase Price pursuant to this
Section 11.1
.
11.2
Exit From Vault Business With Sale to Third Party
.
If, within [
five (5)
] years from the date of this Agreement, Purchaser elects
both (i) to exit the Vault Business subsequent to the Closing and (ii) to sell all
or any portion of the Vault Business to a third party, then Purchaser shall provide
written notice (the
Sale Notice
) to the Seller promptly after making such
election. At any time thereafter, the Seller may submit to Purchaser an offer to
purchase the Vault Business, and Purchaser shall consider such offer, if any, in
good faith. In addition, Purchaser shall keep Seller informed as to the status of
its discussions with third parties regarding the sale of the Vault Business.
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Notwithstanding the foregoing, however, this
Section 11.2
shall not be
deemed (i) to create a right of first negotiation, right of first offer, right of
first refusal or any other type of preemptive right whatsoever on the part of the Seller with respect to
the sale of all or any portion of the Vault Business; (ii) create any duty or
obligation on the part of Purchaser to consummate any sale of the Vault Business
with the Seller and/or any third party identified by the Seller; or (iii) create any
duty or obligation on the part of Purchaser not to consummate any sale of the Vault
Business to a third party. For purposes of clarity, Purchaser may at any time
consummate a sale with a third party on the terms and conditions that it, in its
sole and absolute discretion, determines are advisable, regardless of whether those
terms and conditions are more, less or equally as favorable to Purchaser as any
offers submitted to the Purchaser by the Seller.
8.
Retention
Program
. Notwithstanding
Section 2.3(c)(xvi)
and
Section
3.18(d)
of the Original Agreement, Purchaser acknowledges that the Retention Program will not
have been implemented by Seller at the time of Closing. Seller and the Shareholders hereby
covenant and agree that, promptly after Closing, Seller will implement a Retention Program
containing terms and conditions satisfactory to Purchaser in accordance with
Section
3.18(d)
of the Original Agreement; and (ii) issuing the incentives set forth in
Exhibit
A
attached hereto to the individuals set forth thereon.
9.
Effective Date
.
The parties hereto hereby acknowledge and agree that the transfer
of the Assets pursuant to the provisions of the Agreement shall be deemed effective as of 12.01
a.m. on March 1, 2006, provided, however, that the employees of BVI and of BVST who become
employees of Purchaser pursuant to the provisions hereof shall be moved onto Purchasers payroll
effective as of 12:01 a.m. on February 27, 2006.
10.
Notices
. The address of Mark X. LoPresti, Esq. for notices and other
communications set forth in Section 11.3 of the Original Agreement is amended to read as follows:
Mark X. LoPresti, Esq.
Lederer, Nojima, Tagliaferro, LoPresti & Blakely, LLP
45 Broadway, Suite 2200
New York, New York 10006
11.
References to Original Agreement
. The Original Agreement is hereby amended such
that all references to Agreement contained therein shall be deemed to refer to the Original
Agreement, as amended by this Amendment. All references contained in the Original Agreement to
Sections of the Original Agreement that have been modified by this Amendment shall hereafter be
deemed to refer to such Sections as so amended.
12.
Effect on Original Agreement; Integration
. Except as expressly amended by this
Amendment, the Original Agreement shall remain unmodified and in full force and effect. The
Original Agreement, as amended by the Amendment, reflects the complete and exclusive
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agreement of
the parties with respect to the subject matter hereof, and merges and supersedes all prior
discussions, representations, negotiations and agreements with respect thereto.
13.
Counterparts
. This Amendment may be executed by facsimile in one or more
counterparts, each of which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
*****
[
signatures appear on the following page
]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Asset Purchase
Agreement, intending to be legally bound, as of the day and year first above written.
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PURCHASER
:
DIGI-DATA CORPORATION
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By:
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(SEAL)
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Name:
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Dennis Cindrich
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Title:
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President & CEO
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SELLER
:
bigVAULT STORAGE TECHNOLOGIES, INC.
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By:
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(SEAL)
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Name:
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John Salerno
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Title:
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President & CEO
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BIG VAULT, INC.
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By:
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(SEAL)
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Name:
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John Salerno
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Title:
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President & CEO
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SHAREHOLDERS:
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John Salerno
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Elisa Salerno
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7
ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION
THIS ASSET PURCHASE AGREEMENT
AND PLAN OF REORGANIZATION
(
Agreement
), dated as of
September 30, 2009 is by and between JEKYLL ISLAND VENTURES INC. , a New York corporation, doing
business as
Gotham Photo Company
, the
Seller
), and GOTHAM INNOVATION LAB INC., a New
York corporation (
Purchaser
).
WITNESSETH:
Seller is in the business of providing complete web and software development solutions to
businesses, including, but not limited to the real estate industry, and related ancillary services
(the
Development Business
).
Purchaser is a wholly owned subsidiary of iGambit Inc.
The parties hereto wish to enter into this Agreement which sets forth the terms and conditions
upon which Purchaser agrees to purchase from the Seller and the Seller agrees to sell to Purchaser,
for the consideration stated herein, all of the assets of the Seller (other than to the extent
specifically set forth herein) free and clear of all liens, liabilities and encumbrances.
In consideration of the foregoing and of the covenants, agreements, conditions,
representations and warranties hereinafter contained, and intending to be legally bound hereby,
Purchaser and the Seller hereby agree as follows:
1. DEFINITIONS.
Unless otherwise defined below in this Section 1, the various capitalized terms used in this
Agreement shall have the definitions ascribed to them herein. As used in this Agreement, the
following terms shall have the meanings specified in this Section 1:
Agreed Accounts Payable
means the total vendor and trade payables as set forth on
Schedule 2.2
, including the monthly rent payment.
Agreed Accounts Receivable
means the total customer receivables as of the date of closing as
set forth on
Schedule 2.1
.
Agreed Cash Balance
means the Cash balance as of the date of closing as set forth on
Schedule 2.1
.
Assigned Contracts
means all of the Contracts.
Claim
means an action, suit, proceeding, demand, claim or counterclaim or legal,
administrative or arbitral proceeding or investigation.
Contract
means all agreements, whether oral or written and whether express or implied
(whether legally binding or not), including contracts, contract rights, promises, commitments,
undertakings, customer accounts, orders, leases, guarantees, warranties and
1
representations and franchises to which Seller is a party.
Copyrights
shall mean all copyrights (whether or not registered), moral rights, and all
registrations and applications for registration thereof, as well as rights to renew copyrights.
Governmental Authorities
means all agencies, authorities, bodies, boards, commissions,
courts, instrumentalities, legislatures and offices of any nature whatsoever of any government,
quasi-governmental unit or political subdivision, whether foreign, federal, state, county,
district, municipality, city or otherwise.
Intellectual Property
shall mean all (i) Patents, (ii) Know-how, (iii) Trade Secrets, (iv)
Trademarks, ( v) Copyrights, (vi) Software Programs (including but not limited to off-the-shelf
shrink-wrap and click-wrap Software Programs), in each case that are licensed by Seller and/or
otherwise used in the Development Business as currently operated, and (vii) all other intellectual
property rights (of every kind and nature throughout the universe and however designated), whether
arising by operation of law, contract, license or otherwise.
Intellectual Property Rights
means, collectively, any and all known or hereafter known
tangible and intangible rights under patent, trademark, copyright and trade secret laws, and any
other intellectual property, industrial property and proprietary rights worldwide, of every kind
and nature throughout the universe, however designated, whether arising by operation of law,
contract, license or otherwise.
Key Seller Employees
means, the following employees of Seller: David Pollack and Vincent
Collura.
Know-how
shall mean any and all product specifications, processes, methods, product designs,
plans, trade secrets, inventions reduced to writing or to practice, manufacturing, engineering and
other manuals and drawings, safety, quality control, technical information, data, research records,
and any and all other confidential or proprietary technical and business information which are
licensed to or owned by Seller and/or otherwise used in the Development Business as currently
operated.
Liability
means any direct or indirect indebtedness, liability, assessment, expense, claim,
loss, damage, deficiency, obligation or responsibility, known or unknown, disputed or undisputed,
joint or several, vested or unvested, executory or not, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, determinable or undeterminable, accrued or
unaccrued, absolute or not, actual or potential, contingent or otherwise (including but not limited
to any liability under any guarantees, letters of credit, performance credits or with respect to
insurance loss accruals).
Moral Rights
means, collectively, rights to claim authorship of a work, to object to or
prevent any modification of a work, to withdraw from circulation or control the publication or
distribution of a work, and any similar rights, whether existing under judicial or statutory law of
any country or jurisdiction worldwide, or under any treaty or similar legal authority, regardless
of whether such right is called or generally referred to as a moral right. Moral Rights does
not include
Residual Knowledge
.
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Patents
shall mean all patents, patent disclosures and patent applications (including,
without limitation, all reissues, divisions, continuations, continuations-in-part, renewals,
re-examinations and extensions of the foregoing) owned by Seller and/or otherwise used in the
Development Business as currently operated.
Person
means any individual, corporation, joint venture, partnership, limited partnership,
limited liability company, limited liability partnership, syndicate, trust, association, entity or
government or political subdivision, agency or instrumentality of a government.
Residual Knowledge
means knowledge and experience retained in intangible form in Sellers
unaided memories as a result of working with and viewing the Intellectual Property.
Tangible Personal Property
means all machinery, equipment, tools, furniture, fixtures and
equipment, computer hardware, supplies, materials, leasehold improvements, automobiles, computing
and telecommunications equipment and other items of tangible personal property, of every kind owned
or leased by the Seller and/or otherwise used in the Development Business (wherever located and
whether or not carried on the books of the Seller), together with any express or implied warranty
by the manufacturers or sellers or lessors of any item or component part thereof, and all
maintenance records and other documents relating thereto.
Taxes
means: (1) any and all taxes, fees, levies, duties, tariffs, imposts and other
charges of any kind, imposed by any Governmental Authority or taxing authority, including taxes or
other charges on, measured by, or with respect to income, franchise, windfall or other profits,
gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers
compensation, unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration
and documentation fees; and customers duties, tariffs and similar charges; (2) any Liability for
the payment of any amounts of the type described in (1) as a result of being a member of an
affiliated, combined, consolidated or unitary group for any taxable period; (3) any Liability for
the payment of amounts of the type described in (1) or (2) as a result of being a transferee of, or
a successor in interest to, any Person or as a result of an express or implied obligation to
indemnify any Person; and (4) any and all interest, penalties, additions to tax and additional
amounts imposed in connection with or with respect to any amounts described in (1), (2) or (3).
Tax Return
means any return, report, statement, form or other documentation (including any
additional or supporting material and any amendments or supplements) filed or maintained, or
required to be filed or maintained, with respect to or in connection with the calculation,
determination, assessment or collection of any Taxes.
Trademarks
shall mean (i) trademarks, service marks, trade names, trade dress, labels, logos
and all other names and slogans used exclusively with any products or embodying associated goodwill
of the Development Business related to such products, whether or not registered, and any
applications or registrations therefor, and (ii) any associated goodwill incident thereto, in each
case owned by or licensed to Seller and/or otherwise used in the Development Business as currently
operated.
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2. PURCHASE AND SALE OF ASSETS.
2.1
Assets Included
. On the terms and subject to the conditions set forth in this
Agreement, and in reliance upon the covenants, representations and warranties of the Seller at the
Closing (as defined in
Section 2.4
hereof), Purchaser shall purchase from the Seller, and
the Seller shall sell, assign, transfer and deliver to Purchaser, free and clear of any and all
Liabilities, pledges, liens, obligations, claims, charges, tenancies, security interests,
exceptions or encumbrances whatsoever (collectively,
Liens
), the Assets set forth on
Schedule
2.1
of the schedules attached hereto and include (but are not limited to) the following:
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(a)
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Cash in Bank;
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(b)
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Accounts Receivable ;
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(c)
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All Tangible Personal Property;
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(d)
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All intangible property;
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(e)
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All of the Assigned Contracts;
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(f)
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All permits relating to the acquisition or ownership of the Assets or the
operation of the Development Business;
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(g)
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All data, records, files, manuals, blueprints and other documentation related
to the Seller, the Assets and the operation of the Development Business,
including but not limited to (1) service and warranty records; (2) sales promotion
materials, creative materials, art work, photographs, public relations and advertising
materials, studies, reports, correspondence and other similar documents and records
used in the Development Business, whether in electronic form or otherwise; (3) all
client and customer lists, telephone numbers and electronic mail addresses with respect
to past, present or prospective clients and customers; (4) all accounting and tax
books, ledgers and records and other financial records relating to the Development
Business and the Assets; (5) all sales and credit records and brochures relating to the
Development Business, purchasing records and records relating to suppliers; and (6)
subject to applicable Law, copies of all personnel records of all Seller employees,
including the Key Seller Employees;
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(h)
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All of the Sellers furniture and fixtures, as set forth on
Schedule
2.1.2(f)
hereto (the
Furniture and Fixtures
);
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(i)
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All of the Sellers tools and equipment, as set forth on
Schedules
2.1.2(g)
hereto (the
Equipment
);
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(j)
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All of the inventory, merchandise, stores of supplies, spare parts,
stock-in-trade and work in progress, including, without limitation, the items set forth
on the Inventory Statement attached hereto as
Schedule 2.1.2(h)
;
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(k)
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All Intellectual Property owned, developed or used in connection with the
Assets or the Development Business;
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(l)
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All policies and procedures reduced to writing or embodied in electronic form,
methods of delivery of services, trade secrets, disks, drawings and specifications,
market studies, consultants reports, prototypes, and all similar property of any
nature, tangible or intangible, used in connection with the Development Business;
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(m)
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All goodwill incident to the Development Business, including the value of the
names associated with the Development Business that are transferred to Purchaser
hereunder and the value of good customer relations;
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(n)
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All computers, software programs, automation systems, accounting systems,
master disks of source codes, and other proprietary information owned or licensed,
whether for general business usage (e.g. accounting, word processing, graphics,
spreadsheet analysis, etc.) or specific, unique-to-the-business usage, and all computer
operating, security or programming software, owned or licensed and used in the
operation of the Development Business;
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(o)
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All Claims, contract rights and warranty and product liability claims against
third parties) relating to the Assets or the Development Business.
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2.2
Accounts Payable Included
. On the terms and subject to the conditions set forth
in this Agreement, and in reliance upon the covenants, representations and warranties of the Seller
at the Closing (as defined in
Section 2.4
hereof), Purchaser shall assume from the Seller,
and the Seller shall deliver to Purchaser, the agreed vendor and trade payables (
Agreed Accounts
Payables
) as more fully set forth on
Schedule 2.2
of the disclosure schedules attached.
Seller shall assume all liability for such trade payables and shall pay same when due Purchaser
does not assume or agree to pay, perform or discharge any liability or obligation of Seller,
whether known or unknown, arising out of, incurred in connection with, or related to: (i)
liabilities or obligations of Seller arising prior to the Closing Date which are not specifically
included within the definition of Agreed Accounts Payables hereunder; (ii) liabilities or
obligations of Seller incurred on or after the Closing Date; (iii) any pension or other benefit
liability relating to Sellers employees.
2.3.
Purchase Price
.
(a)
Purchase Price Payable
. In reliance on the representations and warranties of the
Seller and the performance of the covenants and fulfillment of the conditions set forth in this
Agreement, Purchaser shall at the Closing, purchase the Assets from the Seller and in respect
thereof shall, subject to the provisions of this Agreement, pay an aggregate purchase price
(
Purchase Price
) to Seller set forth below.
(1) Deliver 500,000 shares of iGambit Inc.s common voting stock
to the seller herein at Closing;
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(2) Seller will also receive options to purchase, iGambit Inc. Common
voting shares over a three-year period starting on the first through third
anniversary of signing of this agreement, based upon the following:
i. Year 1 the option shall be to purchase 500,000 common voting
shares at $.01 per share. The exercise of this stock option is
conditioned upon the performance of the Development Business. The
exercise of this option in conditioned upon
Development Business
revenue for the year ended December 31, 2010 $1.2 million with a
net of approximately $100,000.00
ii. Year 2 the option shall be to purchase 500,000 common voting
shares at $.01 per share. The exercise of this stock option is
conditioned upon the performance of the Development Business. The
exercise of this option in conditioned upon
Development Business
revenue for the year ended December 31, 2011 to be approximately
$1.5 million with a net of approximately (within 75%) $150,000.
iii Year 3 the option shall be to purchase 500,000 common voting
shares at $.01 per share. The exercise of this option in
conditioned upon
Development Business
revenue for the year ended
December 31, 2012 to be approximately $2.0 million with a net of
approximately (within 75%) $200,000.
(3) Purchaser shall assume the
Agreed Accounts Payables
(b)
Investment Commitment and Continued Operation of Business.
(i)
Initial Investment Commitment
. The Purchaser agrees to arrange for funding of
Gotham Innovation Lab Inc., if necessary, during the period beginning on the Closing Date and
ending one (1) year later to support the agreed upon Business Plan. Except for the Initial
Investment Commitment and as mutually agreed to upon annual budget and business plan review as
described in
Section 2.3(b)(i)
, the Purchaser does not agree to provide any financing or
invest any certain amount of time, money or effort with respect to Gotham Innovation Lab Inc. and
shall have no duties or obligations to the Seller whatsoever with respect to the operation of
Gotham Innovation Lab Inc., all of which shall be conducted in the exercise of the Purchasers sole
and absolute discretion.
(ii) Continued Operation of Gotham Innovation Lab Inc.
: The Purchaser shall fund and
operate Gotham Innovation Lab Inc for at least three (3) years plus three (3) months after the
Closing of this transaction.
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(iii)
Default of Purchaser
: The following shall be events of Purchasers default
under this agreement:
(A) The Purchasers failure to perform any of the covenants contained in
Section 2.3 (b) (ii)
of this Agreement
(B) The Purchasers breach of any other covenant of this Agreement.
(C) The Purchaser becoming insolvent or otherwise unable to perform its
obligations under this Agreement.
Upon an event of default as set forth in paragraphs 2.3(iii) (A) and (B) the Seller may
terminate and cancel this agreement upon ten (10) days written notice to the Purchaser, if
Purchaser is unable to cure the default within ten (10) days after such notice. Upon the event of
default contained in paragraph 2.3(iii) (C), the Agreement shall terminate and be cancelled upon
occurrence of the default.
The term insolvent shall be defined to include any of the following events: (i) the filing
of a petition by or against the Purchaser for relief under the United States Bankruptcy Code and
thirty (30) days after filing there has been no relief from the Bankruptcy filing, or (ii) if a
receiver or trustee is appointed for all or a substantial portion of the Purchasers assets, or
(iii) if any assignment for the benefit of the Purchasers creditors is made. The provisions of
Section 2.3(b) shall survive the Closing
2.4
Closing
.
(a)
Time and Place
. Subject to the terms and conditions of this Agreement, the sale
and purchase of the Assets contemplated hereby (the
Closing
) shall take place at the offices of
iGambit Inc., 1600 Calebs Path Extension, Suite 114, Hauppauge, NY 11788 within three (3) days of
the satisfaction (or waiver, as applicable), of the conditions to Closing set forth in
Section
8
hereof, or at such other time, date or place as the parties hereto may mutually agreed upon
in writing. The time and date of the Closing are herein referred to as the
Closing Date
, and the
term Closing Date shall include the date on which the transactions contemplated hereunder are
consummated.
(b)
Deliveries by Purchaser to the Seller
. At the Closing, Purchaser (or its
designee) shall deliver or cause to be delivered each of the following:
(i) Stock Certificates totaling 500,000 of iGambit Inc.s Common Voting Shares and
issued in the following names and denominations:
Jekyll Island Ventures, Inc. 500,000
(ii) Stock Option Agreements to purchase 1,500,000 of iGambit Inc.s Common Voting Shares, at
an exercise price of $.01 per share, and exercisable as per the terms set forth in
Section
2.3
, and issued in the following names and denominations
Jekyll Island Ventures, Inc. 1,500,000
7
(c)
Deliveries by the Seller
. At Closing, the Seller shall deliver or cause to be
delivered to the Purchaser (or its designee) each of the following:
(i) An Assignment and Bill of Sale, in such form as mutually agreed by the parties, executed
by the Seller, selling, assigning, transferring and delivering to the Purchaser all of the Assets,
free and clear of any and all Liens;
(ii) Good standing certificates of Jekyll Island Ventures Inc. dated no earlier than ten (10)
calendar days prior to the Closing Date, certifying (i) that Jekyll Island Ventures Inc. is in good
standing in the State of New York and is qualified to do business in the State of New York; and
(ii) that Jekyll Island Ventures Inc. is qualified to do business in all of the other states in
which Jekyll Island Ventures Inc. then does business;
(iii) Duly executed intellectual property assignments from each of the employees, prior
employees, consultants and prior consultants of Seller specified on
Schedule 2.4(c)
attached hereto in a form satisfactory to Purchaser (collectively, the
Intellectual Property
Assignments
).
(iv) Duly executed assignments from Seller, assigning all of Sellers rights in, to and under
the Assigned Contracts to the Purchaser on such terms and conditions as the Purchaser shall in the
exercise of its sole and absolute discretion determine (collectively, the
Contract Assignments
).
(v)) Duly executed written consents from each of the parties to each of the Assigned
Contracts, to the extent such consent is required pursuant to the terms thereof, consenting to the
assignment of the Contracts to the Purchaser, in such form as Purchaser shall in the exercise of
its sole and absolute discretion determine (collectively, the
Consents
).
(vi) A duly executed assignment of Sellers rights to Sellers trademarks, and service
marks, in each case, in form and substance satisfactory to the Purchaser.
(vii) All other documents necessary or appropriate, in the opinion of Purchaser, to effectuate
the purchase and sale of the Assets at the Closing, free and clear of all liens, in accordance with
the provisions of this Agreement.
2.5
Further Assurances
. In addition to the actions, documents and instruments
specifically required to be taken or delivered hereby, prior to and after the Closing and without
further consideration, the Seller shall execute, acknowledge and deliver such other assignments,
transfers, consents and other documents and instruments and take such other actions as Purchaser or
its counsel may reasonably request to complete and perfect the transactions contemplated by this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller represents and warrants to the Purchaser that the following
8
representations and warranties are true and correct in all material respects on the date
hereof and will be true and correct in all material respects on and as of the Closing Date:
3.1
Organization and Good Standing
. Jekyll Island Ventures Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of New York and in all
other states in which Jekyll Island Ventures Inc. does business, is qualified to do business in the
State of New York and all other states in which Jekyll Island Ventures Inc. does business and has
full corporate power to execute, deliver and perform its obligations under this Agreement.
3.2
Authority and Consents
. The Seller has full power to enter into and to carry out
the terms of this Agreement. The Seller and its directors have taken all actions, corporate and
otherwise, necessary to authorize the execution, delivery and performance of this Agreement, the
completion of the transactions contemplated hereby and the execution and delivery of any and all
instruments necessary or appropriate to effectuate fully the terms and conditions of this
Agreement. Except as set forth on
Schedule 3.2
, no consent or approval of any third party,
court, governmental agency, other public authority or third party with any actual or alleged
interest in the Sellers business or the Assets is required as a condition to (a) the
authorization, execution, delivery and performance of this Agreement or any other instruments
necessary to effectuate this Agreement; or (b) the consummation by the Seller of the transactions
contemplated herein. This Agreement has been properly executed and delivered by the Seller and
constitutes the valid and legally binding obligation of the Seller and is enforceable against the
Seller in accordance with its terms.
3.3
Rights of First Refusal; Right of First Negotiation, Etc.
There are no applicable
rights of first refusal, rights of first negotiation, rights of first offer or similar rights of
any kind that would require the Seller to provide any third party with notice, an opportunity to
discuss, negotiate or to engage in any of the transactions contemplated hereby prior to
consummating the transactions contemplated hereby.
3.4
No Conflict
. Neither the execution and delivery of this Agreement nor the carrying
out of the transactions contemplated hereby will result in (a) any violation, termination or
modification of, or conflict with, the articles of incorporation or By-Laws of either Seller or any
of the contracts or other instruments to which the Seller is a party, or of any judgment, decree or
order applicable to the Seller; or (b) the creation of any Lien on all or any portion of the
Assets.
3.5
Brokers and Finders Fees
. All negotiations relating to this Agreement have been
carried on between the parties directly without the intervention of any person that would give rise
to a valid claim against any of the parties for a brokerage commission, finders fee, advisory fee
or other like payment (each, a
Brokers Fee
). The Seller shall indemnify and hold the Purchaser
harmless from and against any cost, expense, liability or obligation associated with any Brokers
Fee payable to any party by virtue of the purchase and sale contemplated by this Agreement.
3.6
Litigation and Compliance
. There is no Claim pending or threatened against the
Assets, or the Seller; nor is there any valid basis for any such litigation,
9
arbitration, mediation, investigation or other proceeding relating to the Assets, the Seller,
or the transactions contemplated by this Agreement. The Seller is not subject to any order of any
court, regulatory commission, board or administrative body entered in any proceeding to which
Seller is a party or of which any of the foregoing has knowledge. The Seller has complied with and
is currently in compliance with all laws, rules, regulations, orders, ordinances, judgments and
decrees of any governmental authority applicable to the Assets or the Sellers Development
Business.
3.7
Title and Condition of Assets
. The Seller has good and marketable title to all of
the Assets, free and clear of all Liens. The Assets are in good operating condition and repair,
and constitute all of the assets necessary to the conduct by the Seller of its Development Business
in accordance with its past practice.
3.8
Accounts Receivable
. All Accounts Receivable of the Seller reflected in the
balance sheet for the most recently ended period included in the Financial Statements, and all
Accounts Receivable that have arisen since the date of the latest balance sheet of Seller included
in the Financial Statements (except Accounts Receivable that have been collected since such date)
are valid and constitute bona fide Accounts Receivable resulting from the provision of services in
the ordinary course of the Sellers Development Business.
3.9
Financial and Full Information
. The Seller has provided to Purchaser all
information material to the Assets and/or the Development Business, and to the best of the
knowledge of the Seller none of the information furnished to the Purchaser, contains any untrue
statement or omits to state any material fact relevant to the Assets or the Development Business.
3.10
Absence of Undisclosed Liabilities
. As of the date hereof and as of the Closing
Date, the Seller does not have and shall not have any indebtedness or other liability of any kind
whatsoever, absolute or contingent that is not either specifically reflected on the Financial
Statements or otherwise specifically disclosed in writing to Purchaser in this Agreement. In
addition, all indebtedness and/or other liabilities whatsoever (including trade payables) of Seller
are accurately reflected on
Schedule 2.2
, and Seller has no indebtedness and/or other
liabilities (including trade payables) whatsoever other than as set forth on
Schedule 2.2,
attached hereto.
3.11
Governmental Licenses and Permits
. Seller has all governmental licenses and
permits and other governmental authorizations and approvals which are material or necessary for the
operation of the business and the use of the assets of Seller and has in the past been and is now
in material compliance with the conditions and requirements of such government licenses, permits,
authorizations and approvals, and all such governmental licenses, permits, authorizations and
approvals are valid and in full force and effect.
3.12
Business Records
. All business records of the Seller have been provided to
Purchaser for review, are complete and correct in all material respects, and fairly reflect the
operations of the Development Business.
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3.13
Insurance
. Set forth on
Schedule 3.13
is a true and complete list and
description of all insurance in force on the date hereof with respect to the Assets and/or the
Development Business, together with a summary description of the hazards insured against. Such
policies are in full force and effect with reputable insurers and copies thereof have been provided
to Purchaser. There are no outstanding unpaid claims under any such policy and the Seller is not
aware of any notice of cancellation or non-renewal of any such policy. There are and have been no
inaccuracies in any application for such policies, nor any failure to pay premiums thereon when
due. The Seller has not received any notice from any of its insurance carriers that any insurance
premiums will be materially increased in the future or that any insurance coverage will not be
available to the Seller in the future on substantially the same terms as now in effect. No such
insurance policies call for any retrospective premium adjustments. All such insurance policies are
freely assignable by the Seller to Purchaser without the consent of any party.
3.14
Absence of Certain Changes
. Since the date of the Financial Statements there
has not been any material adverse change, or occurrence or state of circumstances which,
individually or in the aggregate, could reasonably be expected to result in a material adverse
change, in the business, prospects, assets, condition (financial or otherwise) or results of
operations of Seller taken as a whole. Since the date of the Financial Statements, Seller has
caused the business of Seller to be conducted in the ordinary course.
3.15
Intellectual Property
.
(a)
Schedule 3.15
sets forth a true and complete list of all registered patents,
trademarks, trade names, service marks and copyrights (registered or not registered) and
applications therefore owned, used, filed by or licensed to Seller or Seller that are material to
the business of Seller (collectively, Intellectual Property). Except for software normally
supplied through shrink-wrap licenses, the Intellectual Property includes all intellectual
property used by Seller in their business as presently conducted.
(b) Seller has not granted any options, licenses or agreements of any kind relating to any
Intellectual Property. Seller owns all right, title and interest in and to the Intellectual
Property, and all Intellectual Property listed in
Schedule 3.15
is free and clear of the
claims of others and of all liens and does not materially violate or infringe upon any rights
relating to intellectual property of any person. The conduct of the business of Seller and Seller
as presently conducted does not violate conflict with or infringe the intellectual property of any
other person. All software used by Seller and Seller is used pursuant to appropriate licenses from
the relevant software publisher.
(c) All personnel (including employees, agents, consultants and contractors), who have
contributed to or participated in the conception and/or development of the Intellectual Property on
behalf of the Seller have executed nondisclosure agreements, and either (1) have been a party to a
work-for-hire and/or other arrangement or agreements with the Seller in accordance with
applicable international, national, state and local Law that has accorded the Seller full,
effective, exclusive and original ownership of all
11
tangible and intangible property and Intellectual Property Rights thereby arising or relating
thereto, or (2) have executed appropriate instruments of assignment in favor of the Seller as
assignee that have conveyed to the Seller effective and exclusive ownership of all tangible and
intangible property and intellectual property rights thereby arising and related thereto. Prior to
the date hereof, the Seller has provided copies of all such written agreements or provided a
summary of the terms of any such oral agreements to Purchaser.
3.16
Contracts
.
Schedule 3.16
sets forth a true and complete list of all
contracts that are material to the operation of the business of Seller and Seller (the
Contracts). To the best of the Sellers knowledge, neither Seller nor its affiliate company
Team5 have received any notice of noncompliance or breach of such Contracts. Neither Seller nor
its affiliate company Team5 are in material breach pursuant to the terms of any of the Contracts
nor, to the knowledge of the Seller, is any other party in breach of their obligations pursuant to
the Contracts.
3.17
Taxes and Tax Returns
.
(a) To the best of Sellers knowledge, all Returns, reports and statements required to be
filed by Jekyll Island Ventures Inc. have been filed with the appropriate governmental agencies in
all jurisdictions in which such Returns, reports and statements are required to be filed; and all
Taxes shown to be due and payable on the Returns have been paid.
(b) To the best of Sellers knowledge, Seller has withheld all Taxes required to be withheld in
respect of wages, salaries and other payments to all employees, officers and directors and any
Taxes required to be withheld from any other person and has timely paid all such amounts withheld
to the proper taxing authority.
3.18
Solvency
. No insolvency proceeding of any character including bankruptcy,
receivership, reorganization, composition or arrangement with creditors, voluntary or involuntary,
affecting, the Seller (other than as a creditor) or any of the Assets are pending or are being
contemplated by the Seller, or are being threatened against the Seller by any other Person, and the
Seller has not made any assignment for the benefit of creditors or taken any action in
contemplation of which that would constitute the basis for the institution of such insolvency
proceedings.
3.19
Sufficiency of Assets
. To the best of Sellers knowledge, the Assets constitute
all of the assets, tangible and intangible, of any nature whatsoever, necessary to operate Gotham
Innovation Lab Inc. in accordance with Seller and Sellers affiliate company Team5 Corp.s past
practices, and include all of the operating assets of Seller.
4. COVENANTS OF THE SELLER.
The Seller hereby covenants and agrees as follows:
4.1
Full Cooperation; Access to Information
. The Seller shall cooperate in good faith
with Purchaser in causing the transactions that are the subject of this
12
Agreement to be consummated. Seller shall permit Purchaser and its counsel, accountants,
employees and other representatives, prior to Closing, to make such investigations of Sellers
business, operations, assets, employees, contracts, books, records and financial information, all
as Purchaser deems necessary or advisable in the conduct of its due diligence investigation into
Sellers business, operations and assets. Seller shall give to Purchaser and its counsel,
accountants, employees and other representatives access, to the fullest extent possible without
unreasonably interfering with Sellers business operations, to all of Sellers personnel,
properties, books, contracts, commitments and records, and will promptly furnish to Purchaser
copies of all such documents and records and information with respect to Sellers affairs as
Purchaser may from time to time in the exercise of its sole and absolute discretion request.
4.2
No Inconsistent Action
. The Seller will not take any action which, is inconsistent
with or impairs the consummation of the transactions contemplated by this Agreement or which would
make inaccurate the representations or warranties made by the Seller herein.
4.3
Non-Solicitation
. In consideration of the expense and effort that will be
expended by Purchaser in its due diligence investigation, the Seller, nor its affiliates will,
directly, indirectly or otherwise, solicit or entertain offers from, negotiate with or in any
manner encourage, discuss, entertain, accept or consider any proposal of any other person or entity
relating to a disposition (directly or indirectly) of all or any portion of the Assets of the
Seller, the stock of either Seller, or a merger involving either Seller, or the issuance of any
shares of or other equity securities of either Seller, at any time during the term of this
Agreement, or to raise funds in the form of debt or equity for use in the Development Business,
until the earlier to occur of September 30, 2009, or, if applicable, the termination of this
Agreement.
4.4
Prohibited Actions Pending Closing
. Unless otherwise provided for herein or
approved by Purchaser in writing, from the date hereof until the Closing Date, the Seller shall
cause the Seller not to do or enter into the following:
(a) amend or otherwise change its Articles of Incorporation, By-Laws or other organizational
documents;
(b) mortgage, pledge or subject to Lien or other encumbrance any of its properties or assets,
or agree to do so;
(c) sell or otherwise dispose of, or agree to sell or dispose of any of its assets or
properties;
(d) amend or terminate any lease, contract, undertaking or other commitment listed in any of
the disclosure schedules annexed hereto to which it is a party, or to take action or fail to take
any action, constituting any event of default thereunder;
(e) assume, guarantee or otherwise become responsible for the obligations of any other party
or agree to do so;
(f) make any change in accounting methods or principles;
13
(g) compromise or settle any material Claim, other than with the consent of the
Purchaser;
(h) acquire the capital stock or other ownership interests of any other entity or acquire all
or substantially all of the assets of another entity;
(i) take any action prior to the Closing Date which would breach any of the representations
and warranties contained in this Agreement;
(j) take any action or omit to take any action if taking or omitting to take such action could
have a Material Adverse Effect, as defined in Section 8.3 hereof, or
4.5
Conduct of Business Pending Closing
. From the date hereof until the Closing Date,
the Seller covenants and agrees to cause the Seller to:
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(a)
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maintain its existence in good standing;
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(b)
|
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maintain proper business and accounting records;
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(c)
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maintain all insurance on the Assets in effect on the date of
this Agreement; and
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(d)
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continue to diligently operate its business in the ordinary course.
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4.6
Sellers Default
. If Seller fails to make the required deliveries at the Closing,
(unless an exception is agreed to by the Purchaser), or otherwise materially defaults under this
Agreement, then Purchaser shall have the right to terminate this Agreement, and thereupon this
Agreement shall be null and void and of no legal effect whatsoever. If so terminated, each party
hereto shall suffer their own losses, costs, expenses or damages arising out of, under or related
to this Agreement. This
Section 4.6
shall survive the Closing.
5.
REPRSENTATIONS WARRANTIES AND COVENANTS OF PURCHASER
.
Purchaser hereby represents and warrants to the Seller that the following representations and
warranties are true and correct in all material respects on the date hereof and will be true and
correct in all material respects on and as of the Closing Date:
5.1
Organization and Good Standing
. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has full power to carry
on its business as it is now being conducted and to own or hold under lease the properties it now
owns or holds under lease.
5.2
Authority
. Purchaser has full power and authority to enter into this Agreement.
Purchaser and its members, officers and directors have taken all action necessary to authorize the
execution, delivery and performance of this Agreement, the completion of the transactions
contemplated hereby and the execution and delivery of any and all instruments necessary or
appropriate to effectuate fully the terms and conditions of this Agreement. This Agreement has
been properly executed and delivered by
14
Purchaser and (assuming the due authorization, execution and delivery thereof by the Seller
constitutes the valid and legally binding obligation of Purchaser and is enforceable against
Purchaser in accordance with its terms.
5.3
No Conflict
. Neither the execution and delivery of this Agreement nor the carrying
out of the transactions contemplated hereby will result in any violation, termination or
modification of, or conflict with, the articles of organization or by-laws of Purchaser or any of
the contracts or other instruments to which Purchaser is a party, or of any judgment, decree or
order applicable to Purchaser.
5.4
Ownership
. Gotham Innovation Lab Inc. is a wholly owned subsidiary of
iGambit Inc. iGambit Inc. is the sole shareholder of Gotham Innovation Lab Inc.
5.5
Shares
. At the time of Closing Gotham Innovation Lab Inc. owns 500,000 shares of
iGambit Inc. Common Voting Stock free of all liens and encumbrances and are not subject to any
transfer restriction except pursuant to SEC Rule 144, and Gotham Innovation Lab Inc. shall
transfer the shares to Seller in accordance with Sections 2.3 and Section 2.4.
5.6
Options.
At the time of Closing Gotham Innovation Lab Inc. owns options to
purchase up to 1.5 million shares of iGambit Inc. Common Voting Stock and Gotham Innovation Lab
Inc. shall designate the Seller as optionee of these options in accordance with Sections 2.3 and
Section 2.4.
5.7
Sale of the Development Business by Purchaser
:
(a) The Purchaser shall not sell or transfer Gotham Innovation Lab Inc. within one (1) year of
the Closing Date under this Agreement. In the event that the Purchaser shall sell or transfer
Gotham Innovation Lab Inc. more than one year after the Closing Date and before the third
anniversary of the Closing Date, then, in such event, the Seller shall become fully vested in the
options on 1,500,000 shares of iGambit, Inc. as specified in
Section 2.3
. Sale of Gotham
Innovation Lab Inc. shall be defined as sale of all or such portion of the assets, customer list(s)
intellectual property and other goodwill to a third party sufficient to allow the third party to
operate Gotham Innovation Lab Inc. as an ongoing business
(b) In the event that the Purchaser shall default in performance of the covenant not to sell
or transfer Gotham Innovation Lab Inc. within one (1) year of the Closing Date, under Section 5.7
(a) of this Agreement, this agreement may be terminated upon ten (10) days written notice to the
Purchaser. The provisions of this Section 5.7 shall survive the Closing.
6. INDEMNIFICATION AND SURVIVAL.
6.1
Indemnification by Seller
. Seller shall indemnify Purchaser and its affiliates
and each of their respective officers, directors, employees, stockholders, agents and
representatives (the Purchaser Indemnified Parties) against and hold them harmless
15
from any loss, liability, claim, Tax, damage or expense (including reasonable legal fees and
expenses) (Losses) suffered or incurred by any such Purchaser Indemnified Parties arising from
the following: (i) any breach of any representation or warranty of Seller contained in this
Agreement or in any certificate delivered pursuant hereto, or (ii) any breach of any obligation,
covenant or agreement of the Seller contained in this Agreement.
6.2.
Indemnification by Purchaser
. Purchaser shall indemnify each Seller and its
affiliates and each of their respective officers, directors, employees, stockholders, agents and
representatives (the Seller Indemnified Parties) against and hold them harmless from any Losses
suffered or incurred by any such Seller Indemnified Parties arising from, (i) any breach of any
representation or warranty of Purchaser contained in this Agreement or in any certificate delivered
pursuant hereto, (ii) any breach of any obligation, covenant or agreement of Purchaser contained in
this Agreement.
6.3
Termination of Indemnification
. The obligations of Purchaser and/or Seller to
indemnify and hold harmless any other person (the indemnified party) pursuant to this
Section
6
, shall terminate when the applicable representation or warranty terminates pursuant to
Section 10.15
,
provided
,
however
, that such obligation to indemnify and
hold harmless shall not terminate with respect to any item as to which the person to be indemnified
or a related party thereto shall have, before the expiration of the applicable period, previously
made a claim by delivering a notice of such claim (stating in reasonable detail the basis of such
claim) to the indemnifying party.
6.4
Procedures Relating to Indemnification
. In order for an indemnified party to be
entitled to any indemnification provided for under this Agreement (other than relating to Taxes) in
respect of, arising out of or involving a claim or demand made by any person against the
indemnified party (a Third Party Claim), such indemnified party must notify the indemnifying
party of the Third Party Claim reasonably promptly and in any event within 30 days after receipt by
such indemnified party of written notice of the Third Party Claim; provided, however, that failure
to give such notification within such period shall not affect the indemnification provided
hereunder except to the extent the indemnifying party shall have been actually materially
prejudiced as a result of such failure.
If a Third Party Claim is made against an indemnified party, the indemnifying party shall be
entitled to participate in the defense thereof and, if it so chooses at its sole cost and upon
written notice to the indemnified party acknowledging its obligation to indemnify the indemnified
party therefore in accordance with the terms of this Agreement (including this Section 6), to
assume the defense thereof with counsel selected by the indemnifying party. Should the
indemnifying party so elect to assume the defense of a Third Party Claim, the indemnifying party
shall not be liable to the indemnified party for legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying party assumes such
defense, the indemnified party shall have the right to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel employed by the indemnifying party.
The indemnifying party shall be liable for the fees and expenses of counsel employed by the
indemnified party for any period during which the indemnifying party has failed to
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assume the defense thereof.
If the indemnifying party so elects to assume the defense of any Third Party Claim, the
indemnified parties shall cooperate with the indemnifying party in the defense or prosecution
thereof. Such cooperation shall include the retention and (upon the indemnifying partys
reasonable request) the provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any material provided
hereunder. If the indemnifying party shall have assumed the defense of a Third Party Claim, the
indemnified party shall agree to any settlement, compromise or discharge of a Third Party Claim
which the indemnifying party may recommend and which by its terms obligates the indemnifying party
to pay the full amount of the liability in connection with such Third Party Claim, which releases
the indemnified party completely in connection with such Third Party Claim and which would not
otherwise materially adversely affect the indemnified party. The indemnified party shall have the
right to settle any Third Party Claim the defense of which shall not have been assumed by the
indemnifying party.
Notwithstanding the foregoing, the indemnifying party shall not be entitled to assume the
defense of any Third Party Claim (and shall be liable for the fees and expenses of counsel incurred
by the indemnified party in defending such Third Party Claim) if the Third Party Claim seeks an
order, injunction or other equitable relief or relief for other than money damages against the
indemnified party, and the indemnified party shall have the sole and exclusive right to settle any
such Third Party Claim. The indemnification required by Sections 6(a) and 6(b) shall be made by
periodic payments of the amount thereof during the course of the investigation or defense, as and
when bills are received or Loss is incurred.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER.
The obligations of the Seller under this Agreement are subject only to the delivery by
Purchaser of the documents described in
Section 2.3(b)
hereof and the satisfaction of the
condition set forth below, as Section 7.1:
7.1 Each of the representations and warranties of the Purchaser contained herein shall have
been true and correct in all material respects on the date hereof, and shall be true and correct in
all material respects.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to proceed to Closing under this Agreement are subject to the
fulfillment (or, at the option of Purchaser, the waiver) at or prior to the Closing Date of each of
the following conditions:
8.1
Accuracy of Representations and Warranties
. Each of the representations and
warranties of the Seller contained herein and in any other agreements or instruments provided for
herein shall have been true and correct in all material respects on the date hereof, and shall be
true and correct in all material respects for that period of
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time between the signing hereof and the Closing Date, and as of the Closing Date as though
made on and as of such date.
8.2
No Action or Proceeding
. No claim, action, suit, investigation or other court
proceeding shall be pending or threatened before any court or governmental agency which presents a
risk of the restraint or prohibition of the transactions contemplated by this Agreement or the
obtaining of material damages or other relief in connection therewith.
8.3
No Material Adverse Changes
. There shall not have been any Material Adverse Change
in the business, assets or prospects of the Seller since January 1, 2009. For purposes of this
Agreement,
Material Adverse Change
or
Material Adverse Effect
means any change or effect that
is or, so far as can reasonably be determined, is reasonably likely to be materially adverse to the
Development Business, its prospects or the Assets.
8.4
Ordinary Course of Business
. The Seller shall have operated the Development
Business in a manner consistent with past practice and shall not have made any payments outside the
ordinary course of its business.
8.5
Delivery of Ancillary Agreements
. The Seller shall have furnished to Purchaser
fully executed Intellectual Property Assignments in accordance with
Section 2.4
hereof.
8.6
Other Evidence
. The Seller shall have furnished to Purchaser such further
certificates and documents evidencing their due action in accordance with this Agreement as
Purchaser shall reasonably request.
9. TERMINATION.
This Agreement may be terminated only as follows: (a) At any time upon the mutual written
consent of the parties hereto; or (b) at any time prior to the Closing by Purchaser by written
notice to the Seller if Purchaser is not satisfied for any reason with its due diligence review or
(c) pursuant to the default provisions contained in paragraphs 2.3(b), 4.6, and 5.7 of this
agreement.
10. MISCELLANEOUS.
10.1
Expenses
. Each party to this Agreement shall pay all of its own closing costs and
other expenses relating hereto, including fees and disbursements of its counsel and accountants,
whether or not the transactions contemplated hereby are consummated.
10.2
Taxes
. The Seller shall bear any and all Taxes of any nature or type whatsoever
that may become due and payable as a result of the consummation of the transactions contemplated
hereby, and the Seller shall indemnify and hold Purchaser harmless with respect thereto.
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10.3
Notices
. All notices and other communications hereunder or in connection herewith
shall be in writing and delivered as follows:
If to the Seller, to:
Jekyll Island Ventures Inc.
333 Park Ave South, Suite 2D
New York, NY 10010
Attn: Mr. Vincent Collura or Mr. David Pollack
If to Purchaser, to:
Gotham Innovation Lab Inc.
c/o iGambit Inc
1600 Calebs Path Extension Suite 114
Hauppauge, NY 11788
Attn: Elisa Luqman
Except as otherwise specifically provided herein, all notices, requests, instructions and
demands which may be given by any party hereto to any other party in the course of the transactions
herein contemplated shall be in writing and shall be served by express mail through the U.S. Postal
Service or similar expedited overnight commercial carrier. Service of such notices, demands and
requests shall be presumed to have occurred on the date that is one (1) day after the date upon
which the item was delivered to the U.S. Postal Service or similar expedited overnight commercial
carrier, provided the item was properly addressed, all postage and shipping charges were prepaid by
the sender and the commercial carrier issued a dated receipt to the sender acknowledging the
commercial carriers receipt of the item. All such notices, demands and requests shall be
addressed as set forth above. Any party may change the address at which it is to receive notice by
like written notice to all other parties hereunder.
10.4
Entire Agreement
. This Agreement (including the exhibits hereto and the lists,
schedules and documents delivered pursuant hereto, which are a part hereof) is intended by the
parties to and does constitute the entire agreement of the parties with respect to the transactions
contemplated by this Agreement. This Agreement supersedes any and all prior understandings,
written or oral, between the parties, and this Agreement may be amended, modified, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of the amendment, modification, waiver, discharge or termination is sought.
10.5
Severability
. If any provision of this Agreement shall be declared by any court
of competent jurisdiction illegal, void or unenforceable, the other provisions shall not be
effected, but shall remain in full force and effect.
10.6
Modification and Amendment
. This Agreement may not be modified or amended except
by an instrument in writing duly executed by the parties hereto, and no waiver of compliance of any
provision or condition hereof and no consent provided for herein shall be effective unless
evidenced by an instrument in writing duly executed by the party hereto seeking to be charged with
such waiver or consent.
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10.7
Governing Law; Jurisdiction; Exclusive Venue
.
(a)
Governing Law
. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, exclusive of the choice of law rules thereof.
(b)
Exclusive Venue
. The parties hereto agree that exclusive venue for any
litigation, action or proceeding arising from or relating to this Agreement shall lie in the County
Court in and for Suffolk County, New York, or, if federal diversity jurisdiction then exists, in
the United States District Court for the District of New York and each of the parties hereto
expressly waives any right to contest such venue for any reason whatsoever.
(c)
Waiver of Trial By Jury
. EACH OF THE PARTIES HERETO EXPRESSLY WAIVES THE RIGHT TO
A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION, ACTION OR PROCEEDING RELATING TO OR ARISING OUT OF
THIS AGREEMENT.
10.8
Binding Effect
. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, legatees, beneficiaries, personal
representatives and other legal representatives and assigns, as the case may be. This Agreement
may not be assigned by any party hereto without the prior written consent of each other party
hereto.
10.9
Enumerations and Headings
. The enumerations and headings contained in this
Agreement are for convenience of reference only and shall in no way be held or deemed to define,
limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of
any provision or the scope or intent of this Agreement, or in any way effect this Agreement.
10.10
Counterparts
. This Agreement may be signed in two or more counterparts, all of
which taken together shall be deemed to constitute one original Agreement.
10.11
Waiver of Bulk Sales Compliance
. Each of the parties hereto waives compliance
with any applicable bulk sales or similar provisions, provided however, that the Seller hereby
agrees to indemnify and hold harmless Purchaser from and against any and all losses, expenses,
claims, liabilities or attorneys fees arising as a result of such waiver.
10.12
Disclosure
. The parties hereto will consult with each other and reach mutual
agreement before issuing any press release or otherwise making any statement or disclosure, oral or
written, with respect to this Agreement or the transactions contemplated hereby; provided, however,
that each party will be permitted to make, without the agreement of the other, such disclosures to
the public or to governmental entities as that partys counsel reasonably deems necessary to
maintain compliance with applicable laws. Except as provided above, the existence and/or contents
of this
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Agreement shall not be disclosed by the Seller without the Purchasers prior written consent.
10.13
Confidentiality
. Except as required by law or to carry out the transactions
contemplated by this Agreement (the
Transactions
), neither the Seller, nor the Purchaser, nor
the employees, attorneys, accountants and other agents and representatives of any of the foregoing
(collectively,
Representatives
) will disclose or use any Confidential Information (as defined
below), whether already furnished or to be furnished in the future to any party hereto or their
Representatives in any manner other than in connection with the evaluation and negotiation of the
transactions proposed in this Agreement once executed and delivered. For purposes of this
Agreement,
Confidential Information
means the existence and terms of this Agreement and any
information regarding Purchaser or the Seller, their affiliates or the Transactions. Confidential
Information does not include information that a party to this Agreement can demonstrate (i) is
generally available to or known by the public other than as a result of improper disclosure; (ii)
is obtained by the disclosing party from a source other than the other party or its
Representatives; or (iii) was in the possession of the other party prior to the date hereof other
than as a result of improper disclosure and was obtained other than in connection with
consideration of the transactions set forth in this Agreement, provided that such source was not
bound by a duty of confidentiality with respect to such information. Upon the written request of
any party, the other party will promptly return any Confidential Information in its possession or
in the possession of its Representatives.
10.15
Survival
. All representations and warranties made by the parties in this
Agreement and in any other certificates and documents delivered in connection herewith shall not
survive the Closing unless such survival in expressly provided for in this Agreement.
Notwithstanding the above, each Partys obligations under Sections of this Agreement, Section 6
entitled Indemnification and Survival and Section 10 entitled Miscellaneous, shall survive the
Closing.
[
signatures appear on next page
]
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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase and Plan of
Reorganization Agreement under seal on the date first above written.
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WITNESS:
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PURCHASER:
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GOTHAM INNOVATION LAB INC
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a New York corporation
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By:
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(SEAL)
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Name: John Salerno
Title: Chairman and CEO
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WITNESS:
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SELLER:
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JEKYLL ISLAND VENTURES INC.
a New York corporation
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By:
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(SEAL)
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Name: Vincent Collura
Title: President
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Schedule 2.1 to Asset Purchase Agreement
Assets
Cash in Bank as of date of closing
Accounts Receivable as of date of closing
Client List Reports provided to Purchaser during Due Diligence.
Schedule 2.1.2 (f) Furniture and Fixtures
Accountants schedule attached.
Schedule 2.1.2 (g) List of Equipment
Accountants schedule attached.
Schedule 2.1.2 (h) Inventory Statement
NONE No inventory
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Schedule 2.2 to Asset Purchase Agreement
Accounts Payable
Monthly lease payment for office space to Team5
Accounts payable schedule as of date of closing
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Schedule 2.4 (c) to Asset Purchase Agreement
List of Employees & Consultants
Current Employees
Vincent Collura
David Pollack
Pavel Sokolowski
Mindy Weinstein
Sarah Booze
Vanessa Cheung
Carol Nhan
Michael Fanuzzi
Independent Consultants
William Che Everich
Daniel Chang
Former Employees
Carmine Guida
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Schedule 3.2 to Asset Purchase Agreement
Third Party Consents
Client/Customer Contracts (Alternatively new agreements with the following parties can be
entered into with Gotham Innovation Lab Inc.)
Norca/Kirchain Support and Maintenance Agreement
Prudential Douglas Elliman (Signed consent and assignment not required if new agreement signed.
Then automatic as per agreement)
RealPlus Master Development and Revenue Share Agreement (Signed consent and assignment not required
if new agreement signed. Then automatic as per agreement)
Non-Disclosure Agreements (Alternatively new Non-Disclosure Agreements with the following
parties can be entered into with Gotham Innovation Lab Inc.)
CSH Capital Group
Runnyc
Prudential Douglas Elliman
Vendor Agreements (Alternatively new Agreements with the following parties can be entered into
with Gotham Innovation Lab Inc.)
iNetu Hosting Agreement
Transbeam DSL Agreement
26
Schedule 3.13 to Asset Purchase Agreement
List of Insurance
Jekyll Island Ventures
Business Policy General Liability
Team 5 Corp
.
State Farm Fire and Casualty Company
Business Policy General Liability # 92-BG-W212-2
Workers Compensation
Disability
Medical United Healthcare Oxford Policy # TC1291*CSO4U
Dental
Franklin Templeton Bank and Trust Simple IRA Plan (Team5)
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Schedule 3.15 to Asset Purchase Agreement
Intellectual Property
Proprietary Software (unregistered Copyrights)
EXPO (all versions)
E-Brochure (all versions)
Gotham Media Management System (all versions)
Gotham Business Operations Systems (all versions)
Online Media Storing and Sharing APIs (all versions)
Team5_Aspnet-Funtions DLL Library (all versions)
Team5 Client services System (all versions)
Trade Names
Team5
Gotham
Gotham Photo Company
Jekyll Island Ventures
Domain Names
gotham-ny.com
team5.com
teamfive.com
50orchardstreet.com
50orchardstreet.com
631east9thstreet.com
cohen-group.com
elitesearchgroup.net
fccny.org
gothamlabs.com
gothamphotoco.com
gothamphotocompany.com
monstereasy.com
monsterez.com
monstersteamclean.com
monstersteamcleaner.com
wwwcambridgewhoswho.com
ALLACCESSNYC.COM
APARTMENTSPIN.COM
ATHINKINGTOY.COM
ATTACKOFTHEROBOTDINO.COM
BELOWASK.COM
BELOWASKING.COM
BUYLOWNYC.COM
COLLEGESAFTETYSIGNGENERATOR.COM
CREATIVELYGREENCORP.COM
CRGNYC.COM
CRGNYC.NET
DEALGATHERER.COM
DEALRAID.COM
DEALVADER.COM
FOREVERIZEIT.ORG
GREENDOLLSONLINE.COM
GREENINNOVATIONCORP.COM
GREENOVATIONCORP.COM
FINDACONDOFORME.COM
FINDALEASEFORME.COM
FINDARENTFORME.COM
FINDATOWNHOUSEFORME.COM
FINDMYCOOP.COM
FORCE5STUDIOS.COM
FORCEFIVESTUDIOS.COM
FOREVERIZE.COM
FOREVERIZEIT.BIZ
FOREVERIZEIT.COM
FOREVERIZEIT.INFO
Third Party Licensed Software
None
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List of Royalties, License Fees and Third Party Payments Owed regarding Intellectual Property
None
Schedule 3.16 to Asset Purchase Agreement
Contracts
Client/Customers Contracts or Work in Progress
Cambridge Whos Who
FCC NY
Heddings
J&R
Norca/Kirchain Support and Maintenance Agreement
Prudential Douglas Elliman
RealPlus Master Development and Revenue Share Agreement
Customers being Hosted by Seller at no charge. Post closing all of the following customers will
be offered a Hosting Agreement from Gotham Innovation Lab Inc.
Euroflex
123 Washignton Place/ Moinian (2 sites)
CSH/Silver Cove
Gramercy Stark
Avenue NY
Families with Children from China
Bellmarc
Coco Realty
David Shuldiner
Elite Search Group.net
Heddings Property Group
Kiddie Soccer
Villasatanangiri.com
Nuzuc
Non-Disclosure Agreements
CSH Capital Group
Runnyc
Prudential Douglas Elliman
Vendor Agreements
iNetu Hosting Agreement
Transbeam DSL Agreement
Jive Communications
Electric Company
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