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3. Business Acquisition
As previously reported, on February 12, 2013, the Company entered into a Settlement and Release Agreement ("Settlement Agreement") to resolve certain claims the Company made against Timios National Corporation ("TNC" – formerly known as Homeland Security Capital Corporation) for indemnification pursuant to the indemnification provisions of that certain Stock Purchase Agreement, dated July 15, 2011 ("Purchase Agreement") between the Company, TNC and Safety & Ecology Holdings Corporation ("SEHC") (collectively known as the "Parties"), subsequent to our acquisition of SEHC and its subsidiaries (collectively known as Safety and Ecology Corporation or "SEC") on October 31, 2011. The Settlement and Release Agreement resolved (collectively, the "Subject Claims"): (a) the Disputed Claims, and (b) any other claim arising under the Purchase Agreement with respect to a breach of (i) the representations and warranties of the Parties contained in the Purchase Agreement, and (ii) certain covenants contained in the Purchase Agreement. Pursuant to the Settlement Agreement, the Parties agreed as follows:
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the note, dated October 31, 2011 ("October Note"), with a principal balance of approximately $1,460,000, was cancelled, terminated and rendered null and void. The October Note of $2,500,000 was issued on October 31, 2011, as partial consideration of the purchase price; |
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the Company issued to TNC a new, two-year, non-negotiable, unsecured promissory note in the principal amount of approximately $230,000 (the "New Note") in replacement of the October Note. The New Note bears an annual interest rate of 6%, payable in 24 monthly installments of principal and interest of approximately $10,000, with first payment due and paid on February 28, 2013; |
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the remaining Escrow Balance of $500,000 was released to TNC. A sum of $2,000,000 was deposited into an escrow account at October 31, 2011 to satisfy certain claims that we may have against TNC for indemnification pursuant to the Purchase Agreement and the Escrow Agreement. TNC and SEHC further agreed that if certain conditions were not met by December 31, 2011, relating to a certain contract, then the Company could withdraw $1,500,000 from the escrow account. We received $1,500,000 from the escrow on January 10, 2012 as certain conditions were not met under this contract; |
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the Parties terminated all of their rights and obligations to indemnification under the Purchase Agreement, except with respect to TNC's covenants relating to non-compete, non-solicitation of customers and employees, confidentiality, and related remedies which will continue in full force and effect in accordance with the terms of the Purchase Agreement (the "Continuing Covenants"); |
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the Parties terminated their rights and obligations with respect to (i) the representations, warranties, and covenants contained in the Purchase Agreement, except for the Continuing Covenants; and |
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the Company terminated its contractual right to offset amounts owing to TNC under the Purchase Agreement to satisfy claims against TNC. |
In connection with the resolution of the Disputed Claims, we also entered into a Settlement and Release Agreement and Amendment to Employment Agreement ("Leichtweis Settlement") with Christopher Leichtweis, our Senior Vice President (see discussion under Note 14 – "Related Party Transactions – Christopher Leichtweis" for a discussion of the Leichtweis Settlement). Mr. Leichtweis served as the President and Chief Executive Officer of SEC prior to our acquisition of SEC.
As previously reported, transactions resulting from the Settlement Agreement were recorded retrospectively as part of the final purchase price allocation of SEC completed during the fourth quarter of 2012, in accordance with ASC 805 – "Business Combinations."
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