AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION, dated as of June 3, 1997
("Agreement"), by and among MITEK SYSTEMS, INC., a Delaware corporation
("Purchaser"), and TECHNOLOGY SOLUTIONS, INC., a Virginia corporation (the
"Company"), and each of the following persons: Xxxx Xxxxxxxxxx, Xxx Xxxxxxxxxx,
Xxxxx Xxxxxx, and Xxxxx Xxxxxx (the foregoing persons, in their individual
capacities are referred to herein collectively as the "Shareholders").
WHEREAS, the respective Boards of Directors of Purchaser and the Company
have approved the acquisition of substantially all of the assets of the Company
and the assumption of certain liabilities of the Company by Purchaser (the
"Reorganization"), subject to the terms and conditions of this Agreement;
WHEREAS, the Company and the Purchaser have adopted this Agreement as a
plan of reorganization under Section 368(a)(1)(C) of the Internal Revenue Code.
NOW THEREFORE, in consideration of the foregoing premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties, intending to be legally bound hereby, agree as follows:
ARTICLE 1
THE REORGANIZATION AND RELATED MATTERS
1.1. Definitions.
(a) "Acquired Assets" means all right, title, and interest in and to
all of the assets of the Company used in the business and operation of the
Company, including (but not by way of limitation) all of its real and tangible
personal property, cash, Intellectual Property, goodwill, leases, contracts,
agreements, orders, accounts, notes, and other receivables, claims, deposits,
prepayments, refunds, permits, licenses, books, records, files, documents and
correspondence related to such assets and any other assets used in the business
or operations of the Company. The Acquired Assets shall not include (i) the
corporate charter, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of the Company as a corporation; (ii) the government
contracts known as Bartleby 3 (MDA904-96-C-0962) and Cygnus (MDA904-97-C-0333)
(the "Government Contracts"), any work derived from the Government Contracts,
the accounts receivable derived from the Government Contracts, and any
government-furnished equipment associated with the Government Contracts;
(iii) the following tangible assets: 2 desks, 2 tables, 2 chairs, and all
miscellaneous (paper, pens, etc.) office supplies, 2 Pentium computers with 17"
monitors; 1 Network Hub, 1 file cabinet, 2 three line phones, 1 LaserJet IV
printer, 2 copies of any commercial software normally
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used in the development or support of the Government Contracts (i.e., Microsoft
Office 8.0, MSVC 5.0 and MSVB 5.0); and (iv) any of the rights of the Company
under this Agreement.
(b) "Assumed Liabilities" means (a) all obligations of the Company
under the licenses, leases and contracts listed on Schedule 1.1(b), attached
hereto, incurred on or after the Closing Date. Notwithstanding the foregoing,
the Assumed Liabilities shall not include any other liability of the Company,
including (but not by way of limitation): (i) any Liability of the Company for
income, transfer, sales, use, and other Taxes arising in connection with the
consummation of the transactions contemplated hereby; (ii) any Liability of the
Company for costs and expenses incurred in connection with this Agreement or the
consummation of the transactions contemplated hereby; or (iii) any Liability or
obligation of the Company under this Agreement.
(c) "Intellectual Property" means all (a) domestic or foreign patents,
patent applications, patent disclosures, improvements and licenses thereto,
(b) trademarks, service marks, trade dress, logos, trade names, and corporate
names and registrations and applications for registration thereof and licenses
thereto, (c) copyrights and registrations and applications for registration
thereof and licenses thereto, (d) mask works and registrations and applications
for registration thereof and licenses thereto, (e) computer software, data, and
documentation, and any licenses for such software, data and documentation,
(f) trade secrets and confidential business information (including ideas,
formulas, compositions, inventions whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (h) copies and tangible embodiments thereof (in whatever
form or medium).
(d) "Liability" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
(e) "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
(f) "Tax" means any federal, state, local, or foreign net income,
gross income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Section 59A of the Code), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, fee, assessment, charge or addition
thereto, whether disputed or not, imposed upon the Company or any of its
properties by any taxing authority.
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1.2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase from the Company,
and the Company agrees to sell, assign, transfer, convey, and deliver to the
Purchaser, Acquired Assets at the Closing for the consideration specified below
in this Section 1.2.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, the Purchaser agrees to assume and become
responsible for all of the Assumed Liabilities at the Closing. The Purchaser
will not assume or have any responsibility, however, with respect to any other
obligation or Liability of the Company not included within the definition of
Assumed Liabilities.
(c) Purchase Price. The Purchaser agrees to pay to the Company at the
Closing Two Hundred Forty Thousand Dollars ($240,000) ("Cash Consideration")
payable by wire transfer or delivery of other immediately available funds and
Six Hundred Eighty-Five Thousand Seven Hundred Fourteen (685,714) shares of
common stock, $0.001 par value, of Purchaser ("Stock Consideration," and
together with the Cash Consideration, the "Purchase Price").
(d) The Closing. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place at the offices of Xxxx, Forward, Xxxxxxxx
& Scripps, L.L.P., 000 Xxxx Xxxxxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx, 00000,
at 10:00 a.m., local time, on June 3, 1997, or at such other time and place and
on such other date as Purchaser and the Company shall mutually agree (the
"Closing Date").
1.3. Transfer of Title to the Acquired Assets. The sale, assignment,
conveyance, transfer and delivery by the Company of the Acquired Assets shall be
made at the Closing by appropriate bills of sale, assignments, endorsements, and
such other appropriate instruments of transfer as shall be reasonably requested
by the Purchaser or otherwise sufficient to vest in the Purchaser as of the
Closing Date good and marketable title to the Acquired Assets that are owned,
and a valid and assignable leasehold interest in the Acquired Assets that are
leased by the Company, in each case free and clear of any liens, charges and
encumbrances. Such instruments of assignment, conveyance, and transfer shall
include without limitation a xxxx of sale transferring title to tangible
Acquired Assets in the form of Schedule 1.3(a) hereto (the "Xxxx of Sale") and
an assignment transferring title to intangible Acquired Assets substantially in
the form of Schedule 1.3(b) hereto (the "Assignment"). Risk of loss of the
Acquired Assets shall pass from the Company to the Purchaser at Closing.
1.4. Employees. As of the Closing Date, the Purchaser will provide the
Company with a list of those employees of the Company that the Purchaser intends
to employ (the "Retained Employees"), provided that the Purchaser shall have no
obligation to employ any employees nor any ongoing obligation to continue the
employment of any such employees that it elects to employ for any specific term.
The Company shall be solely responsible for any severance, termination payments
or Liabilities incurred: (i) at any time, relating to any of the Company
employees not employed by
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Purchaser; and (ii) prior to the Closing Date, relating to any of the Company's
employees which Purchaser employs regardless of when any claim or demand
therefor may be made.
1.5. Escrow Deposit. At the Closing, (i) the Shareholders shall enter into
a pledge and escrow agreement substantially in the form attached as Schedule 1.5
(the "Escrow Agreement") with Purchaser, as escrow agent (the "Escrow Agent");
(ii) each of the Shareholders shall surrender to Purchaser's transfer agent his
certificate(s) evidencing the Stock Consideration issued to him in the
Reorganization, together with executed stock powers; and (iii) Purchaser's
transfer agent shall be instructed to deliver to the Escrow Agent, to be held in
escrow and pledged to Purchaser pursuant to the terms of the Escrow Agreement, a
portion of the Stock Consideration, in proportion to the relative interests of
the Shareholders, consisting of 50,000 shares of Purchaser Stock (the "Escrow
Amount"). As provided in the Escrow Agreement, the Escrow Amount shall be
applied towards any liabilities of the Shareholders arising under Article 5
hereof. The parties to this Agreement understand and agree to the terms of the
Escrow Agreement which, when duly executed, shall be incorporated as part of
this Agreement.
1.6. Further Assurances. At any time and from time to time after the
Closing, at the Purchaser's reasonable request and without further
consideration, the Company and the Shareholders, as appropriate, promptly shall
execute and deliver such instruments of sale, transfer, conveyance, assignment
and confirmation, and take such other action, as the Purchaser may reasonably
request to more effectively transfer, convey and assign to the Purchaser, and to
confirm the Purchaser's title to, the Acquired Assets and the Assumed
Liabilities, to put the Purchaser in actual possession and operating control
thereof, to assist the Purchaser in exercising all rights with respect thereto
and to carry out the purpose and intent of this Agreement.
1.7. Collection of Acquired Assets. Subsequent to the Closing, Purchaser
shall have the right and authority to collect all receivables and other items
transferred and assigned to it by Company hereunder and to endorse with the name
of Company any checks received on account of such receivables or other items,
and Company agrees that it will promptly transfer or deliver to Purchaser from
time to time, any cash or other property that Company may receive with respect
to any claims, contracts, licenses, leases, commitments, sales orders, purchase
orders, receivables of any character included in the Acquired Assets or any
other items included in the Acquired Assets.
ARTICLE 2
REPRESENTATION AND WARRANTIES
2.1. Representations and Warranties of the Company and the Shareholders.
Except as specifically disclosed by the Company and the Shareholders to
Purchaser in this Agreement or in the Disclosure Memorandum attached hereto as
Exhibit A (the disclosures in which shall be deemed to modify and qualify the
following representations and warranties of the Shareholders), each Shareholder
jointly and severally represents and warrants to and for the benefit of
Purchaser as
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follows (and, whenever a representation and warranty is made "to the knowledge
of the Shareholders", such representation and warranty shall be deemed to have
been made based on both the actual knowledge of the Shareholders and on the
knowledge which the Shareholders would have acquired had they conducted a
reasonable inquiry of the subject matter of the representation and warranty):
(a) Due Organization, Good Standing and Corporate Power. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the law of the jurisdiction of its incorporation and
each such corporation has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by its makes such qualification necessary, except in such
jurisdictions where the failure to be so qualified or licensed and in good
standing would not have a material adverse effect on the business, properties,
assets, liabilities, operations, results of operation, business prospects or
condition (financial or otherwise) (the "Condition") of the Company and its
subsidiaries taken as a whole.
(b) Authorization and Validity of Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby,
have been duly authorized and approved by its Board of Directors and have been
approved by the Shareholders, and no other corporate action on the part of the
Company is necessary to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by the Company and
the Shareholders and constitutes the valid and binding obligation of the Company
and the Shareholders, enforceable against the Company and the Shareholders in
accordance with its terms, except that such enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting creditors;
rights generally, and general equitable principles. The Registration Rights and
Stock Restriction Agreement in the form attached hereto as Schedule 2.1(b) (the
"Registration Agreement"), when duly executed and delivered by the Shareholders,
will constitute the valid and binding obligations of such Shareholders,
enforceable against such Shareholders in accordance with its terms, except that
such enforcement may be limited by applicable bankruptcy, insolvency or other
similar laws affecting creditors' rights generally, and general equitable
principles.
(c) Capitalization.
(i) The authorized capital stock of the Company consists of
20,000 shares of Common Stock. As of the date of this Agreement, 20,000 shares
of Common Stock are issued and outstanding and immediately prior to the Closing
Date 20,000 shares of Common Stock will be issued and outstanding. All issued
and outstanding shares of Common Stock have been validly issued and are fully
paid and nonassessable, and are not subject to, nor were they issued in
violation
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of, any preemptive rights. There are no other shares of capital stock of the
Company authorized, issued or outstanding, and there are not as of the date
hereof, and at the Closing Date there will not be, any outstanding or authorized
options, warrants, rights, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities, or other commitments,
contingent or otherwise, relating to the Common Stock or any other shares of
capital stock of the Company, pursuant to which the Company is or may become
obligated to issue shares of Common Stock, any other shares of its capital stock
or any securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of the Company, except for the
options identified on Schedule 2.1(c)(i) attached hereto (all of which options
either will be exercised or canceled prior to the Closing Date, and any Common
Stock issued in connection with such exercise(s), when so issued, will be
validly issued, fully paid and nonassessable and will not have been issued in
violation of any preemptive rights). All of the shares of Common Stock have the
same voting and other rights.
(ii) All of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to, nor were they issued in
violation of, any preemptive rights, and are owned, of record and beneficially,
by the Company, free and clear of all liens, encumbrances, options or claims
whatsoever. No shares of capital stock of any of the Company's subsidiaries are
reserved for issuance and there are no outstanding or authorized options,
warrants, rights, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities, or other commitments,
contingent or otherwise, relating to the capital stock of any subsidiary of the
Company, pursuant to which such subsidiary is or may become obligated to issue
any shares of capital stock of such subsidiary or any securities convertible
into, exchangeable for, or evidencing the right to subscribe for, any shares of
such subsidiary. There are no restrictions of any kind which prevent the payment
of dividends by any of the Company's subsidiaries. Except for the Company's
subsidiaries set forth in the Disclosure Memorandum, the Company does not own,
directly or indirectly, any capital stock or other equity interest in any Person
or have any direct or indirect equity or ownership interest in any Person, and
neither the Company nor any of its subsidiaries is subject to any obligation or
requirement to provide funds for or to make any investment (in the form of a
loan, capital contribution or otherwise) to or in any Person.
(iii) The Company has not made and as of the Closing Date will
not have made any redemptions of, or distributions with respect to, any of its
Common Stock.
(d) Consents and Approvals; No Violations. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not: (1) violate any provision of the
charter documents or the by-laws of the Company or of any of its subsidiaries;
(2) violate any statute, ordinance, rule, regulation, order or decree of any
court or of any governmental or regulatory body, agency or authority applicable
to the Company or any of its subsidiaries or by which any of their respective
properties or assets may be bound; (3) require any filing with, or permit,
consent or approval of, or the giving of any notice to, any governmental or
regulatory body, agency or authority; or (4) result in a violation, termination
or breach of, conflict with, constitute (with or without the giving of notice or
lapse of time or both) a
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default (or give rise to any right of termination, cancellation, payment or
acceleration) under, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
of its subsidiaries under, result in the forfeiture of any rights, entitlements
or privileges under, create any right or entitlement (including, without
limitation, to employment or compensation) not expressly provided for herein, or
require the consent or approval of any party under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party, or by which it or
any of their respective properties or assets may be bound.
(e) Company Financial Statements. The Company has delivered to
Purchaser its unaudited consolidated financial statements for its two most
recently completed fiscal years (the "Financial Statements"). The balance sheet
of the Company as of the most recently completed fiscal year included in the
Financial Statements is hereafter referred to as the "Balance Sheet." The
Financial Statements are in accordance with the books and records of the Company
(which books and records are true and correct in all material respects) and were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and fairly present the consolidated financial position of the
Company as of the dates thereof and the results of its operations, shareholders'
equity and cash flows for the periods then ended. The Company has also delivered
to Purchaser its unaudited interim financial statement consisting of a
consolidated balance sheet as of its most recently completed quarter and a
consolidated income statement and statement of cash flows for the period between
the most recently completed fiscal year and the most recently completed quarter
(the "Interim Financial Statements"). The Interim Financial Statements are in
accordance with the books and records of the Company and are prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and fairly present the consolidated financial position of the Company as
of the date thereof and the results of its operations and cash flows for the
period then ended. It is understood and acknowledged that the Financial
Statements and the Interim Financial Statements will be included by Purchaser in
a Registration Statement which Purchaser intends to file with the Securities and
Exchange Commission.
(f) Absence of Undisclosed Liabilities. Except as set forth in the
Balance Sheet, neither the Company nor any of its subsidiaries has any
outstanding claims against it, liabilities or indebtedness, contingent or
otherwise, other than liabilities incurred subsequent to the date of the Balance
Sheet in the ordinary course of business, consistent with past practices and, to
the extent so incurred after said date are set forth in the balance sheet
included in the Interim Financial Statements. Neither the Company nor any of the
Shareholders knows or has any reason to know of any basis for the assertion
against the Company or any of its subsidiaries of any liability of any nature or
in any amount not fully reflected or reserved against in the Balance Sheet, on
the balance sheet included in the Interim Financial Statements or expressly
disclosed by this Agreement. The adjusted tax basis and the fair market value of
the assets of the Company exceed the liabilities of the Company as of the date
hereof and will exceed the liabilities of the Company as of the Closing Date.
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(g) Accounts Receivable. The accounts receivable of the Company as
reflected in the Balance Sheet and the balance sheet included in the Interim
Financial Statements are, to the extent uncollected on the date of this
Agreement, valid and existing and fully collectible through the use of ordinary
collection procedures (net of reserves set forth in such financial statements as
at such dates, which reserves were adequate and in an amount consistent with the
Company's historical accounting policies), represent monies due for goods sold
and delivered or services rendered and are subject to no refunds, discounts,
rebates or other adjustments (except discounts for prompt payment given in the
ordinary course of business) and to no defenses, rights of setoff, assignments,
restrictions, encumbrances or conditions enforceable by third parties on or
affecting any thereof. The Company has never factored any of its accounts
receivable.
(h) Inventories. The inventories reflected in the Balance Sheet and
the balance sheet included in the Interim Financial Statements were, and those
reflected on the books of the Company since such dates have been, determined and
valued in accordance with generally accepting accounting principles applied on a
consistent basis as reflected in the Balance Sheet and the balance sheet
included in the Interim Financial Statements. Inventories of the Company consist
of items which are good and merchantable, and are of a quality and quantity
presently usable or salable in the ordinary course of business, subject to such
amount of the reserves applicable thereto as are on the books of the Company as
of the date of the Balance Sheet.
(i) All Assets of Business; Condition of Acquired Assets. The Acquired
Assets constitute all of the assets used to conduct the Business. All of the
tangible assets and all leasehold improvements included in the Acquired Assets
are in good repair, have been well maintained, conform with all applicable
ordinances, regulations and zoning, environmental and other laws, regulations
and ordinances (except to the extent that any nonconformance would, individually
or in the aggregate, not have a material adverse effect on the Acquired Assets
or the business of the Company) and do not encroach on property of others, and
all machinery and equipment included in the Acquired Assets is in good working
order.
(j) Title to Properties; Encumbrances. The Company and each of its
subsidiaries has good, valid and marketable title to (i) all its tangible
properties and assets (real and personal), including, without limitation, all
the tangible properties and assets reflected in the Balance Sheet and the
balance sheet included in the Interim Financial Statements, except as indicated
in the notes thereto and except for tangible properties and assets reflected in
such balance sheets which have been sold or otherwise disposed of in the
ordinary course of business consistent with past practices, and (ii) all the
tangible properties and assets purchased by the Company and any of its
subsidiaries since the date of the Interim Financial Statements, except for such
properties and assets which have been sold or otherwise disposed of in the
ordinary course of business consistent with past practices, in each case subject
to no encumbrance, lien, charge or other restriction of any kind or character,
except for (1) liens reflected in the Balance Sheet and the balance sheet
included in the Interim Financial Statements, or disclosed in the Disclosure
Memorandum, (2) liens consisting of zoning or planning restrictions, easements,
permits and other restrictions or limitations on the use of real property or
irregularities in title thereto which do not materially detract from the value
of, or impair the use of,
8
such property by the Company or any of its subsidiaries in the operation of its
respective business and (3) liens for current taxes, assessments or governmental
charges or levies on property not yet due and delinquent. The Disclosure
Memorandum contains an accurate list and summary description of all real estate
and personal property (with a unit value in excess of $1,000) owned and leased
by the Company or any of its subsidiaries.
(k) Absence of Certain Changes and Events. Since the date of the
Balance Sheet (i) there has not been any material adverse change in the
Condition of the Company and its subsidiaries taken as a whole; (ii) the
businesses of the Company and each of its subsidiaries have been conducted in
the ordinary course consistent with past practices; (iii) neither the Company
nor any of its subsidiaries has incurred any material liabilities (direct,
contingent or otherwise) or engaged in any material transaction or entered into
any material agreement; (iv) the Company and its subsidiaries have not increased
the compensation of any officer or granted any salary or benefits increase to
its officers; (v) neither the Company nor any of its subsidiaries has taken any
action referred to in Section 3.3 hereof; (vi) the Company has not issued or
sold any capital stock or other securities of any kind; (vii) the Company has
not declared, paid or set aside for payment any divided or other distribution
(payable in cash, securities or other property) in respect of its capital stock
or other securities; and (vii) the Company has not split, combined,
reclassified, redeemed, purchased or otherwise acquired any capital stock or
other securities of the Company.
(l) Minute Books. The minute books of the Company and its
subsidiaries, as previously made available to Purchaser and its representatives,
contain accurate records of all meetings of and corporate actions or written
consents by the shareholders and Boards of Directors of the Company and its
subsidiaries.
(m) Compliance with Laws. The Company and its subsidiaries are in
substantial compliance with all applicable laws, regulations, orders, judgments
and decrees. Without limiting the generality of the foregoing, (a) the Company
and its subsidiaries have substantially complied with each, and, to the
knowledge of the Shareholders, are not in violation of any, federal, state or
local law, statute, regulation, permit provision or ordinance, relating to the
generation, handling, storage, transportation, treatment or disposal of
chemicals, toxic substances, solid wastes, hazardous wastes and hazardous
substances (the "Environmental Laws"); (b) the Company and its subsidiaries have
obtained and complied with all necessary permits and other approvals, including
interim status under the Resource Conservation and Recovery Act, as amended
("RCRA"), necessary to store, treat, dispose of and otherwise handle hazardous
wastes and hazardous substances and have reported, to the extent required by any
Environmental Law, all past and present sites owned, leased or operated by the
Company or any of its subsidiaries where hazardous wastes or hazardous
substances, if any, have been treated, stored or disposed; and (c) to the
knowledge of the Shareholders, there are no locations at any sites currently or
previously owned, leased or operated by the Company or any of its subsidiaries
where hazardous wastes or hazardous substances have entered into the soil,
surface water or groundwater. To the knowledge of the Shareholders, there are no
on-site or off-site locations to which the Company or any of its subsidiaries
have transported chemicals, toxic substances, hazardous wastes or hazardous
substances or arranged for their transportation, which site
9
is the subject of any federal, state or local enforcement action or other
investigation under any environmental Laws, which may lead to claims against the
Company or any of its subsidiaries for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"). To the knowledge of the
Shareholders, no polychlorinated biphenyls or substances containing
polychlorinated biphenyls are present on any sites owned, leased or operated by
the Company or any of its subsidiaries and no asbestos or materials containing
asbestos are present on any sites owned, leased or operated by the Company or
any of its subsidiaries. The Disclosure Memorandum contains lists or summary
descriptions of the following insofar as they affect or relate to any sites
owned or operated by the Company or any of its subsidiaries:
(i) All federal, state, and local permits relating to hazardous
wastes or hazardous substances held by the Company or any of its subsidiaries;
(ii) All hazardous wastes or hazardous substances generated at
any sites owned, leased or operated by the Company or any of its subsidiaries;
(iii) Identification of where and how such wastes or substances,
if any, were generated, handled, stored, treated and disposed;
(iv) All transporters used to transport hazardous wastes or
hazardous substances from any sites owned, leased or operated by the Company or
any of its subsidiaries to off- plant sites; (v) All off-site locations where,
to the knowledge of the Shareholders, hazardous wastes or hazardous substances
generated at any sites owned, leased or operated by the Company or any of its
subsidiaries were transported for treatment, storage or disposal;
(vi) All variances, notices or violation, compliance orders or
judgments against the Company involving any environmental matters; (vii) Any
locations at any sites currently or previously owned, leased or operated by the
Company or any of its subsidiaries where, to the knowledge of the Shareholders,
hazardous wastes or hazardous substances have been generated, handled, stored,
treated or disposed;
(viii) All notices given by the Company or any of its
subsidiaries to any governmental agency or authority about discoveries of
problems associated with hazardous wastes and hazardous substances at any sites
currently or previously owned, leased or operated by the Company or any of its
subsidiaries, including copies of all spill reports, all reports submitted by
the Company or any of its subsidiaries pursuant to environmental permits,
information supplied in response to inquiries from federal, state or local
agencies, and any requests submitted to the Company or any of its subsidiaries
by the United States Justice Department, the United States Environmental
Protection Agency or state agencies pursuant to CERCLA, RCRA or applicable state
laws regarding
10
the hazardous wastes or hazardous substances the Company or any of its
subsidiaries has generated in the past and where those wastes and substances are
disposed; and
(ix) To the knowledge of the Shareholders, all underground
storage tanks located on any site currently owned, leased or operated by the
Company or any of its subsidiaries.
For purposes of this Section 2.1(l), the term "hazardous wastes" shall have
the meaning given to such term in RCRA and the regulations promulgated
thereunder, and the term "hazardous substance" shall have the meaning given to
such term in CERCLA and the Clean Water Act and the regulations promulgated
thereunder.
(n) Material Contracts. The Disclosure Memorandum contains a list of
all Contracts (as defined below) of the following types to which the Company or
any of its subsidiaries is as of the date of this Agreement a party: (a) each
contract of employment of any officer, employee or consultant or with any labor
union or association; (b) each contract or series of related contracts involving
payments either individually or in the aggregate in excess of $15,000 in or
pursuant to which any person who is or was an officer, director, stockholder or
employee of the Company or any of its subsidiaries has a material interest; (c)
each contract relating to the borrowing or lending of money or the guarantee of
any obligations for borrowed money or otherwise, excluding endorsements made for
purposes of collection in the ordinary course of business; (d) each contract
continuing for a period of more than one year from its date involving payments
in excess of $15,000 in any year or $50,000 in the aggregate; (e) each contract
for charitable contributions in excess of $1,000; (f) each contract for the sale
and/or installation of any equipment where the purchase price for such equipment
is not less than $10,000, and each contract for equipment maintenance involving
total payments of not less than $10,000, including each contract for the sale
and/or installation of any equipment where such sale and/or installation has
been completed but the Company has a continuing obligation, contingent or
otherwise; (g) each contract for capital expenditures or for the purchase of
materials, supplies, equipment or services involving payments in excess of
$10,000; (h) each license or royalty agreement (other than standard software
manufacturer's licenses included in the packaged software sold by the Company or
under which the Company's use of software in its own business operations is
licensed); (i) each distribution, dealer, reseller, manufacturer's
representative, sales agency or franchise agreement; (j) each contract relating
to advertising, promotion or public relations, or with any contractor or
subcontractor, not terminable without penalty by the Company or such subsidiary
on 30 days' or less notice; (k) each contract with any government or agency or
instrumentality thereof; (l) each option to purchase any of the Companies'
assets, properties or rights; (m) each agreement under which price discounts
have been granted to customers other than in the ordinary course of business;
(n) each contract with respect to the discharge or removal of effluent,
hazardous wastes or pollutants of any nature; (o) any other contract or series
of related contracts involving payments in the aggregate of more than $10,000;
(p) each contract containing covenants not to compete in any business or
geographical area or not to use or disclose any information in the possession of
the Company or any of its subsidiaries; (q) all contracts for the leasing or
rental of real or personal property; and (r) any other contract not made in the
ordinary course of business. "Contract" shall mean any contract, lease,
commitment, sales order, purchase order, agreement,
11
indenture, mortgage, franchise, note, bond, lien, instrument, plan, permit or
license. The Company has delivered to Purchaser true and correct copies of each
document listed in the Disclosure Memorandum and a written description of each
material oral arrangement so listed.
As of the date of this Agreement, all such Contracts are, and as of the
Closing Date will be, valid, enforceable in accordance with their terms and in
full force and effect, and, to the knowledge of the Shareholders, neither the
Company nor any of its subsidiaries is, and as of the Closing Date neither the
Company nor any such subsidiary will be, in default thereunder. Neither the
Company nor any subsidiary has, as of the date of this Agreement, received
notice that any party to any such contract intends to cancel or terminate such
contract.
(o) Litigation. Except as disclosed in the Disclosure Memorandum,
there is no action, suit, proceeding at law or in equity, or any arbitration or
any administrative or other proceeding by or before (or, to the knowledge of the
Shareholders, any investigation by) any governmental or other instrumentality or
agency, pending, or, to the knowledge of the Shareholders, threatened, against
or affecting the Company or any of its subsidiaries, or any of their properties
or rights. There are no such suits, actions, claims, proceedings or
investigations pending or, to the knowledge of the Shareholders, threatened,
seeking to prevent or challenging the transactions contemplated by this
Agreement. Neither the Company nor any of its subsidiaries is subject to any
judgment, order or decree entered in any lawsuit or proceeding.
(p) Employment Relations and Agreements. Each of the Company and its
subsidiaries is in substantial compliance with all federal, state or other
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours. The Company has not experienced
any material labor difficulty since December 31, 1994.
(q) Relations with Certain Vendors. The Company and its subsidiaries
have maintained and, to the knowledge of the Shareholders, have good working
relationships with each of its vendors and suppliers, and none of the vendors or
suppliers has brought, taken or threatened to bring or take any action or
proceeding or adverse act or position against the Company or any of its
subsidiaries. The Company's relations with its vendors and suppliers will not be
adversely affected by the consummation of the Merger.
(r) Taxes. For any period ending on or before the Closing Date:
(i) The Company has duly and timely filed or will file with any
federal, state, local or foreign governmental taxing authority, body or agency,
all federal, state, local and foreign tax returns, declarations, reports,
estimates, information returns and statements (collectively, "Returns") required
to be filed or sent by or on behalf of the Company and all such Returns are or
will be true, correct and complete. The Company and each of the Shareholders has
paid in full all Taxes (as hereinafter defined) and any penalties, interest,
fines or other charges entered with respect thereto which are due and payable.
All Taxes not yet due and payable have been reserved for or withheld.
12
The Company has had a valid election to be taxed as an "S Corporation" since its
inception and through the Closing Date.
(ii) The Company has properly withheld all amounts required by
law to be withheld for income taxes and unemployment taxes including without
limitation, with respect to social security and unemployment compensation,
relating to its employees, and has properly remitted all withheld amounts
required to be remitted to the appropriate taxing authority, agency or body.
(iii) The Returns filed by the Company have not been audited by
any federal, state or local taxing authority with respect to any item or income,
loss, deduction or credit attributable to the operations of the Company or
otherwise except as disclosed in the Disclosure Memorandum.
(iv) No deficiency for any Taxes has been proposed, asserted or
assessed against the Company which is attributable to the operations of the
Company and which has not been resolved and paid in full or fully reserved for
in the Financial Statements. Neither the Company nor the Shareholders has
received any outstanding and unresolved notices from the Internal Revenue
Service or other state, local or foreign taxing authority, agency or body of any
proposed examination or of any proposed change in reported information relating
to the Company. Except as set forth in the Disclosure Memorandum (which sets
forth the nature of the proceeding, the type of return, the deficiencies
proposed or assessed and the amount thereof, and the taxable year in question),
no federal, state, local or foreign suit, action, claim, investigation, inquiry,
audit or other administrative or court proceeding is pending with regard to any
taxes or Returns.
(v) No waiver or comparable consent given by the Company
regarding the application of the statute of limitations with respect to any
taxes or Returns is outstanding, nor, to the knowledge of the Shareholders, is
any request for any such waiver or consent pending.
(vi) There are no liens for Taxes upon any assets of the Company
other than property tax liens for property taxes not yet due or delinquent.
(vii) Except as disclosed in the Disclosure Memorandum, the
Company has not requested any extension of time within which to file any Return,
and has not failed to file a Return prior to the expiration of any such extended
time period.
(viii) The Company is not a United States real property holding
corporation and has not been a United States real property holding corporation
(as defined in Section 897(c)(2) of the Code) during any period specified in
Section 897(c)(1)(A)(ii) of the Code.
(ix) The Company is not a party to any agreement providing for
the allocation or sharing of Taxes.
13
(x) The Company has not agreed to make, nor are they required to
make, any adjustment under Section 481(a) of the Code for any period ending
after the Closing Date by reason of a change in accounting method or otherwise.
(xi) None of the assets of the Company is required to be treated
as owned by any other person pursuant to the "safe harbor lease" provisions of
former Section 168(f)(8) of the Code.
(xii) The Company is not a party to any venture partnership,
contract or arrangement under which it could be treated as a partner, for
federal income tax purposes.
(xiii) The Company has no permanent establishment located in any
tax jurisdiction other than the United States and is not liable for the payment
of taxes levied by any such jurisdiction located outside the United States.
(xiv) Neither the Company nor the Shareholders has participated
in an international boycott within the meaning of Section 999 of the Code.
(xv) The Company is not an "investment company" within the
meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.
(xvi) All of the Assumed Liabilities of the Company were incurred
by the Company in the ordinary course of business. The fair market value of the
Acquired Assets equals or exceeds the Assumed Liabilities.
(xvii) The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(xviii) There is no plan or intention by any of the Shareholders
to sell, exchange, or otherwise dispose of a number of shares of Purchaser Stock
to be received by them hereunder that would reduce the Shareholders' ownership
of Purchaser Stock to a number of shares having a value, as of the Closing Date,
of less than fifty percent (50%) of the value of all of the outstanding shares
of common stock of the Company ("Company Common Stock") as of the Closing Date.
For the purposes of this representation, the shares of Company Common Stock
exchanged for cash or other property, surrendered by dissenters or exchanged for
cash in lieu of fractional shares of Purchaser Stock will be treated as
outstanding shares of Company Common Stock on the Closing Date. Moreover, the
shares of Company Common Stock and shares of Purchaser Stock held by
Shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the Closing Date will be considered in making this representation.
(xix) The Company will pay its respective expenses incurred in
the Reorganization.
14
(xx) The Company will distribute the Stock Consideration and Cash
Consideration in pursuance of this Agreement.
(xxi) The fair market value of the Acquired Assets exceeds ninety
percent (90%) of the fair market value of the net assets of the Company and
seventy percent (70%) of the fair market value of the gross assets of the
Company as of the Closing Date. For purposes of this representation, amounts
used to pay the Company's expenses of the Reorganization and amounts paid by the
Company to Shareholders who receive cash or other property in the Reorganization
immediately prior to the Closing Date will be included in the assets of the
Company as of the Closing Date.
(s) Intellectual Properties. The Company and its subsidiaries own or
have the right to use all Intellectual Property necessary to the operation of
its business. The Disclosure Memorandum contains an accurate and complete list
of all Intellectual Property which is of importance to the operation of the
business of the Company and its subsidiaries. Unless otherwise indicated in the
Disclosure Memorandum, the Company or one of its subsidiaries owns the entire
right, title and interest in and to the Intellectual Property listed in the
Disclosure memorandum used in the operation of its respective business
(including, without limitation, the exclusive right to use and license the
same)and each item constituting part of the Intellectual Property which is owned
by the Company or one of its subsidiaries and listed in the Disclosure
Memorandum has been, to the extent indicated in the Disclosure Memorandum, duly
registered with, filed in or issued by, as the case may be, the United States
Patent and trademark Office or s such other government entities, domestic or
foreign as are indicated in the Disclosure Memorandum, and such registrations,
filings and issuances remain in full force and effect. Except as stated in
Disclosure Memorandum, there are no pending or, to the knowledge of the
Shareholders, threatened proceedings or litigation or other adverse claims
affecting or with respect to the Intellectual Property. The Disclosure
Memorandum lists all notices or claims currently pending or received by the
Company or any of its subsidiaries during the past two years which claim
infringement, contributory infringement, inducement to infringe,
misappropriation or breach by the Company or any of its subsidiaries of any
domestic or foreign patents, patent applications, patent licenses and know-how
licenses, trade names, trademark registrations and applications, service marks,
copyrights, copyright registrations or applications, trade secrets or other
confidential proprietary information. To the knowledge of the Shareholders, no
person or entity is infringing the Intellectual Property.
(t) Insurance. The Disclosure Memorandum sets forth a list of all
policies or binders of fire, liability, product liability, worker's
compensation, vehicular or other insurance held by or on behalf of the Company
or any of its subsidiaries (specifying for each such insurance policy the
insurer, the policy number or covering note number with respect to binders, and
each pending claim thereunder of more than $5,000 and setting forth the
aggregate amounts paid out under each such policy through the date hereof). Such
policies and binders are valid, in full force and effect and provide coverage
reasonably believed by the Shareholders to be adequate to protect the Company
and its subsidiaries against all insured hazards.
15
(u) Transactions with Management. No director, officer, corporate
employee or shareholder beneficially owning 5% or more of the total number of
issued and outstanding shares of Common Stock: (i) has any contractual
relationship with the Company the liabilities under which are not reflected in
the Financial Statements; (ii) has any direct or indirect interest in any right,
property or assets which is used by the Company or any of its subsidiaries in
the conduct of its or their business; (iii) owns any securities of, or has any
material direct or indirect interest in, any entity which does business with the
Company or any of its subsidiaries; or (iv) is a party to any agreement,
arrangement or commitment or is a party to any pending action or proceeding
which could interfere with the performance of such Person's duties to the
Company.
(v) Broker's or Finder's Fee. No agent, broker, person or firm acting
on behalf of the Company is, or will be, entitled to any commission or broker's
or finder's fees from any of the panties hereto, or from any person controlling,
controlled by, or under common control with any of the parties hereto, in
connection with this Agreement or any of the transactions contemplated herein.
(w) Statements and Other Documents Not Misleading. Neither this
Agreement, including all Schedules, the Disclosure Memorandum, nor any other
document or instrument heretofore or hereafter furnished by the Company in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of any material fact required to be stated in order to make
such statement, document or other instrument not misleading. There is no fact
known to the Shareholders which may materially adversely affect the Condition
which has not been set forth in this Agreement, the Disclosure Memorandum or the
Schedules.
2.2. Representations and Warranties of Shareholders. Each of the
Shareholders represents and warrants, on a several basis, to and for the benefit
of Purchaser that: (i) he is a resident of the State set forth opposite his name
in Schedule 2.2(i) attached hereto; (ii) he has full power and authority to vote
his shares of Common Stock and make, enter into and carry out the terms of this
Agreement, has not granted the right to vote such shares to any other person or
entity during the term of this Agreement, will not, and will not permit any
entity under his control to, deposit any of his shares in a voting trust or
subject any of such shares to any arrangement or agreement with respect to the
voting of such shares, other than as provided in this Agreement; (iii) he is
acquiring the shares of Purchaser Stock pursuant to the Reorganization solely
for his own account, for investment purposes, and pursuant to an exemption from
the registration requirements under applicable federal and state securities
laws; (iv) he is aware that such shares of Purchaser Stock have not been
registered with federal or state securities regulatory agencies in reliance upon
exemptions from the registration requirements under applicable federal and state
laws; (v) he acknowledges and agrees that such shares of Purchaser Stock may not
be sold, pledged, hypothecated or otherwise transferred or disposed of without
registration under federal and applicable state securities laws or exemption
therefrom; (vi) he agrees that the certificates representing such shares of
Purchaser Stock may be inscribed with a legend to reflect the foregoing
restrictions on transferability; (vii) because of the restrictions on the
transferability of such shares of Purchaser Stock, he acknowledges that he may
be required to bear the economic risk of holding such shares for an indefinite
period of time; (viii) he has received and reviewed copies of the Commission
Filings (as defined in Section 2.3(f) hereof); (ix) he and his
16
advisers (if any) have been afforded the opportunity to ask such questions and
obtain such additional information concerning Purchaser and its business and
affairs as he and any such advisers have considered necessary to enable them to
understand the nature of his investment in the shares of Purchaser Stock
issuable pursuant to the Reorganization and to verify the accuracy of
information obtained by them from Purchaser; (x) none of the shares of Purchaser
Stock issuable to him in the Reorganization will, immediately following the
Closing Date, be subject to a "put" or "call" option (other than any call option
that may be deemed to exist by virtue of the Escrow Agreement); and (xi) the
Shareholders will bear their respective expenses incurred in the Reorganization.
In addition, the Shareholders represent and warrant, on a several basis, to and
for the benefit of Purchaser, that they have no knowledge of any plan or
intention to sell or otherwise dispose of a number of shares of Purchaser Stock
issuable in the Reorganization that will reduce their aggregate ownership of
such shares of Purchaser Stock to a number of shares having, in the aggregate, a
Computed Value (as defined below) as of the Closing Date of less than fifty
percent (50%) of the total fair market value of the Company Stock outstanding
immediately before the Closing Date. As used herein, the term "Computed Value"
means, with respect to a share of Purchaser Stock, the closing price of a share
of Purchaser Stock, as reported by NASDAQ on the Closing Date. Finally, each of
the Shareholders represents and warrants, on a joint and several basis, and each
of the other Shareholders represents and warrants on a several basis with
respect to himself, that the following table accurately sets for the securities
of the Company beneficially owned by the Shareholders:
Name Shares of Common Stock
Xxx Xxxxxxxxxx 10,200
Xxxxx Xxxxxx 9,800
2.3. Representations and Warranties of Purchaser. Purchaser represents and
warrants to and for the benefit of the Company and the Shareholders as follows:
(a) Due Organization; Good Standing and Corporate Power. Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
(b) Authorization and Validity of Agreement. Purchaser has full
corporate power and authority to execute and deliver this Agreement and the
Registration Agreement and to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Registration
Agreement by Purchaser and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized and approved by the
Board of Directors of Purchaser. No other corporate action on the part of
Purchaser is necessary under the DGCL or under the Certificate of Incorporation
or By-laws of Purchaser to authorize the execution, delivery and performance by
Purchaser of this Agreement and the Registration Agreement and the consummation
by it of the transactions contemplated hereby and thereby. This Agreement has
been duly executed and delivered by Purchaser and is a valid and binding
obligation of Purchaser, enforceable against Purchaser in
17
accordance with its terms, except that such enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting creditors'
rights generally, and general equitable principles.
(c) Capitalization of Purchaser. As of the date of this Agreement, the
authorized capital stock of Purchaser consists of 20,000,000 shares of Common
Stock, $0.001 par value per share, (referred to herein as "Purchaser Stock") and
1,000,000 shares of Preferred Stock, $0.001 par value per share ("Preferred
Stock"). As of the date of this Agreement, no shares of Preferred Stock are
issued and outstanding, and 10,087,373 shares of Purchaser Stock are issued and
outstanding, all of which have been validly issued and are fully paid and
nonassessable. As of the date of this Agreement, no shares of Purchaser Stock
are held in the treasury of Purchaser or by its subsidiaries. 276,917 shares of
Purchaser Stock have been reserved for issuance upon exercise of outstanding
options awarded under Purchaser's 1986 Stock Option Plan (the "1986 Plan";
415,000 shares of Purchaser Stock have been reserved for issuance upon exercise
of outstanding options awarded under Purchaser's 1988 Stock Option Plan (the
"1988 Plan") and 282,500 shares of Purchaser Stock have been reserved for
issuance upon exercise of options awarded under Purchaser's 1996 Stock Option
Plan the "1996 Plan"). In addition, 361,250 shares of Purchaser Stock have been
reserved for issuance upon exercise of warrants granted by Purchaser to
underwriters and others (the "Warrants"). Except for options granted under the
1986, 1988 and 1996 Plans and the Warrants, as of the date of this Agreement,
there are no options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to Purchaser Stock pursuant to
which Purchaser is or may become obligated to issue shares of Purchaser Stock.
All of the shares of Purchaser Stock have the same voting and other rights.
(d) Validity of Shares to be Issued. The shares of Purchaser Stock to
be issued by Purchaser in the Reorganization pursuant to Article 1 hereof have
been duly authorized and, when issued by Purchaser in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-assessable and not
subject to preemptive rights of Purchaser's shareholders.
(e) Consents and Approvals. Assuming the requirements of this
Agreement are met, the execution and delivery of this Agreement by Purchaser and
the consummation by Purchaser of the transactions contemplated hereby will not:
(1) violate any provision of the charter documents or by-laws of Purchaser; (2)
violate any statute, ordinance, rule, regulation, order or decree of any court
or of any governmental or regulatory body, agency or authority applicable to
Purchaser or by which any of its properties or assets may be bound; (3) require
any filing with, or permit, consent or approval of, or the giving of any notice
to, any governmental or regulatory body, agency or authority other than the
filing of a Form D with the Commission and any necessary state "blue-sky"
filings; or (4) result in a violation, termination or breach of, conflict with,
constitute (with or without the giving of notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation, payment or
acceleration) under, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of purchaser under,
result in the forfeiture of any rights, entitlements or privileges under, create
any right or entitlement (including, without limitation, to employment or
compensation) not expressly provided for herein, or require the consent or
18
approval of any party under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which Purchaser or any
of its subsidiaries is a party, or by which it or any of their respective
properties or assets may be bound.
(f) Reports and Financial Statements. Since January 1, 1996, Purchaser
has filed all forms, reports and documents with the Securities and Exchange
Commission (the "Commission") required to be filed by it pursuant to the federal
securities laws and the Commission rules and regulations thereunder, and all
such forms, reports and documents filed with the Commission have complied in all
material respects with all applicable requirements of the federal securities
laws and the Commission rules and regulations promulgated thereunder. Purchaser
has heretofore made available to the Company and the Shareholders true and
complete copies of all forms, reports, documents, amendments thereto and other
filings filed by Purchaser with the Commission since September 30, 1996 (such
forms, reports, documents and other filings, together with any amendments
thereto, are listed on Schedule 2.3(f) attached hereto and are collectively
referred to herein as the "Commission Filings"). As of their respective dates,
the Commission Filings did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited financial statements of Purchaser for its
fiscal year ended September 30, 1996, included in the Commission Filings (the
"Purchaser Audited Financial Statements"), were prepared in accordance with
generally accepted accounting principles consistently applied and fairly present
the consolidated financial position of Purchaser as of the dates thereof and the
results of its operations, shareholders' equity and cash flows for the period
then ended. The unaudited financial statements of Purchaser for the six-month
period ended March 31, 1997, included in the Commission Filings, have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
Purchaser as of March 31, 1997 and the results of its operations, shareholders'
equity and cash flows for the six-month period then ended in accordance with
generally accepted accounting principles consistently applied.
(g) Absence of Certain Changes and Events. Except as expressly
disclosed in the Commission Filings, since September 30, 1996, there has not
been any material adverse change in the Condition of Purchaser.
(h) Litigation. There is no action, suit, proceeding at law or in
equity, or any arbitration or any administrative or other proceeding by or
before (or, to the knowledge of Purchaser, any investigation by) any
governmental or other instrumentality or agency, pending, or, tot he knowledge
of Purchaser, threatened, against or affecting Purchaser or any of its
subsidiaries, or any of their properties or rights, the outcome of which, if
adverse to Purchaser, would have a material adverse effect on the Condition of
Purchaser and its subsidiaries, taken as a whole. There are no such suits,
actions, claims proceedings or investigations pending or, to the knowledge of
Purchaser, threatened, seeking to prevent or challenging the transactions
contemplated by this Agreement. Neither Purchaser nor any of its subsidiaries is
subject to any judgment, order or decree entered in any lawsuit or proceeding.
19
(i) Form S-3 Eligibility. Purchaser meets the "Registrant
Requirements" set forth in Instruction I.A of the General Instructions for the
use of Form S-3 (Registration Statement under the Securities Act of 1933).
(j) Broker's or Finder's Fee. No agent, broker, person or firm acting
on behalf of Purchaser is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any person controlling,
controlled by, or under common control with any of the parties hereto, in
connection with this Agreement or any of the transactions contemplated herein.
(k) Statements and Other Documents Not Misleading. Neither this
Agreement, including all Schedules, nor any other document or instrument
heretofore or hereafter furnished by Purchaser to the Company in connection with
the transactions contemplated hereby contains or will contain any untrue
statement of any material fact or omits or will omit to state any material fact
required to be stated in order to make such statement, document or other
instrument not misleading. There is no fact known to Purchaser which may
materially adversely affect the Condition of Purchaser which has not been set
forth in this Agreement, the Schedules hereto or the Commission Filings.
ARTICLE 3
COVENANTS
3.1. Access to Information; Notice of Changes.
(a) During the period commencing on the date hereof and ending on the
Closing Date, the Company shall, and shall cause each of its subsidiaries to,
upon reasonable notice, afford Purchaser, and its counsel, accountants and other
authorized representatives, reasonable access during normal business hours to
the properties, books and records of the Company and its subsidiaries in order
that it may have the opportunity to make such investigations as it shall desire
of the affairs of the Company and its subsidiaries; such investigation shall
not, however, affect the representations and warranties made by the Shareholders
in this Agreement, except to the extent provided in Section 3.12 hereof. The
Company agrees to cause its officers and employees, and to use its best efforts
to cause its independent accountants, to furnish such additional financial and
operating data and other information and respond to such inquiries as Purchaser
shall from time to time reasonably request and to consult with Purchaser on all
matters respecting its business and operations. During the period commencing on
the date hereof and ending on the Closing Date, the Company shall deliver to
Purchaser its monthly financial statements as promptly as practicable after the
end of each calendar month (and, in any event, within thirty days after the end
of each month).
(b) During the period commencing on the date hereof and ending on the
Closing Date, the Company shall promptly notify Purchaser in writing of any and
all occurrences which, if they had occurred prior to execution of this
Agreement, would have caused the representations and
20
warranties of the Company or Shareholders contained in Section 2.1 and the
Schedules and Disclosure Memorandum delivered in conjunction therewith to be
incorrect in any material respect.
(c) During the period commencing on the date hereof and ending on the
Closing Date, Purchaser shall promptly notify the Company in writing of any and
all occurrences which, if they had occurred prior to execution of this
Agreement, would have caused the representations and warranties of Purchaser
contained in Section 2.3 and the Schedules delivered in conjunction therewith to
be incorrect in any material respect.
3.2. Confidentiality. Information obtained by Purchaser pursuant to Section
3.1 shall be subject to the provisions of the Term Sheet dated May 9, 1997
between the Company and Purchaser.
3.3. Conduct of the Business of the Company Pending the Closing Date. The
Company agrees that, except as expressly permitted by this Agreement or
otherwise consented to or approved in writing by Purchaser, during the period
commencing on the date hereof and ending on the Closing Date:
(a) The Company and each of its subsidiaries will conduct their
respective operations only in the ordinary course of business consistent with
past practice (subject, in any event, to the provisions of paragraph (b) below)
and will preserve intact their respective business organizations, keep available
the services of their officers and employees and maintain satisfactory
relationships with licensors, suppliers, distributors, customers, clients and
others having business relationships with them;
(b) Neither the Company nor any of its subsidiaries shall (i) make any
change in or amendment to its charter documents or by-laws; (ii) grant, issue or
sell any shares of its capital stock or any other securities, or grant, issue or
sell any securities convertible into, or options, warrants or rights to purchase
or subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of, any shares of its capital stock or any other securities, or
make any other changes in its capital structure; (iii) declare, pay or make any
dividend or other distribution or payment with respect to, or split, redeem or
reclassify, any shares of its capital stock; (iv) enter into any contract or
commitment except contracts in the ordinary course of business consistent with
past practices, including, without limitation, for any acquisition of a material
amount of assets or securities; (v) dispose of any assets except for inventory
sold or cash applied in the ordinary course of business consistent with past
practices; (vi) terminate operations at any site where operations are currently
being conducted or commence operations at any site where operations are not
currently being conducted; (vii) enter into, terminate, assign or sublease any
lease of real property; (viii) amend any employee or non-employee benefit plan
or program, employment agreement, license agreement, franchise agreement or
retirement agreement, or pay any bonus or contingent compensation, or contribute
to any pension or profit-sharing plan, or grant any severance or termination pay
except in each case in the ordinary course of business consistent with past
practices; (ix) incur any indebtedness for borrowed money (other than advances
made in the ordinary course of business under the
21
Company's existing revolving line of credit), subject or allow their properties
or assets to be subjected to any mortgages, pledges, security interests,
encumbrances, liens and charges of any kind (other than such as are covered by
clauses (1), (2) or (3) of Section 2.1(i) hereof), incur any liability on any
guaranties, or make any investments in or loans, advances or extensions of
credit to any person or entity; (x) agree to the settlement of any litigation;
or (xi) agree, in writing or otherwise, to take any of the foregoing actions.
(c) The Company shall not, and shall not permit any of its
subsidiaries to, (i) take any action, engage in any transactions or enter into
any agreement which would cause any of the representations or warranties set
forth in Section 2.1 hereof to be untrue in any material respect as of the
Closing Date, or (ii) purchase or acquire, or offer to purchase or acquire, any
shares of capital stock of the Company.
3.4. Best Efforts. Subject to the terms and conditions herein provided,
each of the Company and Purchaser shall, and the Company shall cause each of its
subsidiaries to, cooperate and use their respective best efforts to take, or
cause to be taken, all appropriate action, and to make, or cause to be made, all
filings necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, their respective best efforts to obtain, prior to
the Closing Date, all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the transactions contemplated by this Agreement and to fulfill the conditions to
the Reorganization and to rectify any event or circumstance which could impede
consummation of the transactions contemplated by this Agreement; provided,
however, that no loan agreement or contract for borrowed money shall be repaid,
in whole or in part, and no contract shall be required to be amended or modified
or otherwise require the payment of money or to increase the amount payable
thereunder or otherwise to be more burdensome to the Company or any of its
subsidiaries in order to obtain any such consent, approval or authorization
without first obtaining the written approval of Purchaser.
3.5. No Solicitation of Other Offers. The Company and the Shareholders
agree that neither they nor the Company's subsidiaries, nor any of their
respective officers, directors, employees, representatives, investment bankers,
attorneys, accountants or other agents or affiliates, shall, directly or
indirectly, take any action to encourage, solicit, initiate or participate in
any way in discussions or negotiations with, or furnish any information to, or
afford any access to the properties, books or records of the Company or any of
its subsidiaries to, or otherwise assist, facilitate or encourage, any person or
entity (other than Purchaser, its officers, directors, representatives, agents,
affiliates or associates) in connection with any possible or proposed merger,
consolidation, business combination, liquidation, reorganization, sale or other
disposition of assets, sale of shares of capital stock or similar transactions
involving the Company or any subsidiary or division of the Company. The Company
and the Shareholders will promptly communicate to Purchaser the terms of any
proposal or inquiry that they (or any of them) may receive, and the identity of
the person(s) making the proposal or inquiry, in respect of any such
transaction, or of any such information requested from any of them or of any
such negotiations or discussions being sought to be initiated with any of them.
The Company will
22
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any other parties conducted heretofore with
respect to any of the foregoing.
3.6. Notice of Default.
(a) The Company promptly will give notice to Purchaser of the
occurrence of any event or the failure of any event to occur that results in a
breach of any representation or warranty by the Shareholders contained herein or
a failure by the Company to comply with any covenant, condition or agreement
contained herein.
(b) The Company and the Shareholders will (i) use their best efforts
to take all action necessary to render accurate as of the Closing Date the
representations and warranties of the Shareholders contained herein,
(ii) refrain from taking any action that would render any such representation or
warranty inaccurate as of such time and (iii) use its best efforts to perform or
cause to be satisfied each covenant or condition to be performed or satisfied by
it prior to the Closing Date as contemplated by this Agreement.
(c) Purchaser promptly will give notice to the Company of the
occurrence of any event or the failure of any event to occur that results in a
breach of any representation or warranty by Purchaser contained herein or a
failure by Purchaser to comply with any covenant, condition or agreement
contained herein.
(d) Purchaser will (i) use its best efforts to take all action
necessary to render accurate as of the Closing Date the representations and
warranties of Purchaser contained herein, (ii) refrain from taking any action
that would render any such representation or warranty inaccurate as of such time
and (iii) use its best efforts to perform or cause to be satisfied each covenant
or condition to be performed or satisfied by it prior to the Closing Date as
contemplated by this Agreement.
3.7. Agreement to Execute Certain Documents. Each of the Shareholders
agrees to execute and deliver, at the Closing Date, the documents specified in
Sections 4.2(f), 4.2(g) and 4.2(j) to which he is to be a party.
3.8. Disposition of Company. The Shareholders and officers of the Company
shall ensure that the Company is fully and finally dissolved withing one (1)
year of the date of this Agreement.
3.9. Cooperation on Tax Matters.
(a) After the Closing Date, the Shareholders shall cooperate with the
Purchaser, as and to the extent reasonably requested by the other party, in
connection with the preparation and filing of any Tax Return, statement, report
or form (including any report required pursuant to Section 6042 of the Code and
all Treasury Regulations promulgated thereunder), any audit, and litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retentions and (upon the
23
other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding.
(b) The Shareholders agree, upon request, to use all reasonable
efforts to obtain any certificate or other document from any governmental
authority or any other person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed on Purchaser or Surviving Corporation
(with respect, but not limited, to transactions contemplated hereby).
ARTICLE 4
CONDITIONS PRECEDENT TO REORGANIZATION
4.1. Conditions Precedent to Obligations of Purchaser and the Company. The
respective obligations of Purchaser, on the one hand, and the Company, on the
other hand, to effect the Reorganization are subject to the satisfaction or
waiver (subject to applicable law) at or prior to the Closing Date of each of
the following conditions:
(a) Injunction. No preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory agency,
body or authority which prohibits the consummation of the Reorganization and the
transactions contemplated by this Agreement and which is in effect at the
Closing Date; and
(b) Statutes. No statute, rule, regulation, executive order, decree or
order of any kind shall have been enacted, entered, promulgated or enforced by
any court or governmental authority which prohibits the consummation of the
Reorganization.
4.2. Conditions Precedent to Obligations of Purchaser. The obligation of
Purchaser to effect the Reorganization are also subject to the satisfaction or
waiver, at or prior to the Closing Date, of each of the following conditions
unless waived by Purchaser:
(a) Accuracy of Representations and Warranties. All representations
and warranties of the Shareholders contained herein shall be true and correct in
all material respects as of the date hereof and at and as of the Closing, with
the same force and effect as though made on and as of the Closing Date.
(b) The Company's Performance. The Company and the Shareholders shall
have performed in all material respects all obligations and agreements, and
complied in all material respects with all covenants and conditions, contained
in this Agreement to be performed or complied with by them prior to the Closing
Date.
(c) Legal Actions. There shall not have been any action taken, or any
statute, rule, regulation, judgment, order or injunction promulgated, enacted,
entered or enforced by any state, federal or foreign government or governmental
authority or by any court, domestic or foreign,
24
that would (i) require the divestiture by Purchaser or the Company or any of
their subsidiaries or affiliates of all or any material portion of the business,
assets or property of any of them or impose any material limitation on the
ability of any of them to conduct their business and own such assets and
properties or (ii) impose any limitations on the ability of Purchaser or any of
its subsidiaries effectively to control in any material respect the business or
operations of the Company or any of the Company's subsidiaries.
(d) No Material Changes. No change shall have occurred or been
threatened (and no condition, event or development shall have occurred or been
threatened involving a prospective change) in the Condition of the Company and
its subsidiaries taken as a whole which is or may be materially adverse to such
Condition.
(e) Third Party Consents. The written consent, approval or
authorization of each person whose consent, approval or authorization is
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement shall have been obtained.
(f) Execution of Escrow Agreement. The Shareholders shall have
executed and delivered the Escrow Agreement referenced in Section 1.8.
(g) Execution of Employment Agreements. The persons identified in
Schedule 4.2(g) attached hereto shall have executed and delivered employment
agreements in form and substance acceptable to Purchaser.
(h) Execution of Registration Agreement. The Shareholders shall have
executed and delivered the Registration Agreement (Schedule 2.1(b) attached
hereto).
(i) Execution of Xxxx of Sale. The Company shall have executed and
delivered the Xxxx of Sale referenced in Section 1.3.
(j) Contract Consents. The Company will obtain consents, on terms and
conditions reasonably satisfactory to the Purchaser, from the contracting
parties to the leases, licenses and contracts that constitute the Assumed
Liabilities.
(k) Discharge of Contract Obligations. The Company shall have
discharged any and all obligations owing as of the Closing Date under any of the
Assumed Liabilities.
4.3. Conditions Precedent to Obligation of the Company and Shareholders.
The obligation of the Company and Shareholders to effect the Reorganization is
also subject to the satisfaction or waiver, at or prior to the Closing Date, of
each of the following conditions unless waived by the Company:
25
(a) Accuracy of Representations and Warranties. All representations
and warranties of Purchaser contained herein shall be true and correct in all
material respects as of the date hereof and at and as of the Closing, with the
same force and effect as though made on and as of the Closing Date.
(b) Purchaser's Performance. Purchaser shall have performed in all
material respects all obligations and agreements, and complied in all material
respects with all covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to the Closing Date.
(c) No Material Changes. No change shall have occurred or been
threatened (and no condition, event or development shall have occurred or been
threatened involving a prospective change) in the Condition of Purchaser which
is or may be materially adverse to such Condition.
(d) Execution of Registration Agreement. Purchaser shall have executed
and delivered the Registration Agreement.
ARTICLE 5
SURVIVAL; INDEMNIFICATION; EXPENSES
5.1. Indemnification by Shareholders.
(a) The Shareholders shall defend, indemnify and hold harmless
Purchaser and its affiliates, officers, directors, employees and controlling
persons (the "Purchaser Indemnitees") from any liability, damage, deficiency,
loss, taxes, interest (including interest on claims), penalty, judgments,
assessments, cost or expense, including attorneys fees and costs of
investigating and defending against lawsuits, complaints, actions or other
pending or threatened litigation, where applicable measured net of any
corresponding insurance recovery (being hereafter collectively referred to in
this Article 5 as "Costs"), arising from or attributable to:
(i) Any error, misstatement, omission or inaccuracy in any
representation or warranty made by the Shareholders or the breach of any
representation or warranty made by the Shareholders in the Disclosure Memorandum
or in any Schedule, Exhibit, certificate, agreement, instrument or other
document entered into or delivered pursuant hereto.
(ii) Any failure of the Company or the Shareholders duly to
perform or observe any term, provision, instrument, covenant or agreement to be
performed or observed by the Company or the Shareholders pursuant to this
Agreement, the Disclosure Memorandum or any Schedule, Exhibit, certificate,
agreement, instrument or other document entered into or delivered pursuant
hereto.
26
(b) The indemnification required by Section 5.1 hereof shall be
provided by the Shareholders on a joint and several basis and shall, in the
first instance, be governed by Section 1.8 and satisfied in the manner provided
in the Escrow Agreement, and the Purchaser Indemnitees shall first proceed
against the amounts held in escrow up to the full amount thereof, and may
thereafter proceed against any or all of the Shareholders for any Costs in
excess of amounts held in escrow under the Escrow Agreement. Any notice provided
by Purchaser under the Escrow Agreement shall constitute notice hereunder and
any notice provided by Purchaser hereunder shall constitute notice under the
Escrow Agreement.
5.2. Indemnification by Company and Shareholders. The Company and the
Shareholders shall defend, indemnify and hold harmless the Purchaser Indemnitees
from any Costs arising from or attributable to: (i) any liability of the Company
other than the Assumed Liabilities; and (ii) the conduct or operations of the
Company on or after the Closing Date.
5.3. Indemnification by Purchaser. Purchaser shall defend, indemnify and
hold harmless the Company, its current officers, directors, employees and
controlling persons and the Shareholders (the "Company Indemnitees") from Costs
arising from or attributable to (i) any error, misstatement, omission or
inaccuracy in any representation or warranty made by Purchaser or the breach of
any representation, warranty, agreement or covenant made by Purchaser herein or
in any certificate, agreement, instrument, or other document entered into or
delivered pursuant hereto and (ii) all claims for severance pay or other
compensation made by any person employed by the Purchaser on or after the
Closing Date arising from any action taken by Purchaser subsequent to the
Closing Date except to the extent that the existence of such claim constitutes a
breach of a representation or warranty of the Shareholders contained herein.
5.4. Conduct of Litigation.
(a) An indemnified party hereunder shall promptly give notice to the
indemnifying party after obtaining knowledge of any claim or other item against
the indemnified party as to which recovery may be sought against the
indemnifying party because of the covenants of indemnity set forth above. If
such indemnity shall arise from the claim of a third party, the indemnified
party shall permit the indemnifying party to assume the defense of any such
claim or any litigation resulting from such claim. If the indemnifying party
assumes the defense of the claim, matter or litigation at issue, each
indemnified party shall have the right to employ separate counsel in such claim,
matter or litigation and to participate in the defense or conduct thereof, but
the fees and expenses of such counsel shall not be at the expense of the
indemnifying party unless (i) the indemnifying party shall have failed, within a
reasonable time after having been notified by the indemnified party of the
existence of such claim, matter or litigation as provided in the preceding
sentence, to assume the defense of such claim, (ii) the employment of such
counsel has been specifically authorized in writing by the indemnifying party,
(iii) the named parties to any such action (including any impleaded parties)
include both such indemnified party and the indemnifying party and such
indemnified party shall have been advised in writing by such counsel that there
may be conflicting interests between the indemnifying party and the indemnified
party in the legal defense
27
thereof and, in such event, legal counsel selected by the indemnifying party
shall be required to cooperate fully with legal counsel selected by the
indemnified party relating to such defense, or (iv) equitable relief is being
sought against any of the indemnified parties. If the indemnifying party assumes
the defense of the particular claim or litigation, neither the indemnifying
party or the indemnified party shall, in the defense of such claim or
litigation, counsel to entry of any judgment or enter into any settlement,
except with the written consent of the other party, which consent shall not be
unreasonably withheld. In addition, the indemnifying party shall not enter into
any settlement of any litigated claim (except with the written consent of the
indemnified party) which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the indemnified party a full release
from all liability in respect of such claim or litigation. Failure by the
indemnifying party to notify the indemnified party of its election to defend any
such claim or litigation by a third party within fifteen (15) days after notice
thereof shall have been given to the indemnifying party shall be deemed a waiver
by the indemnifying party of its right to defend such claim or litigation. If
the indemnifying party shall not assume the defense of any such claim by a third
party or litigation resulting therefrom, the indemnified party may defend
against such claim or litigation in such manner as it may deem appropriate and
may settle such claim or litigation on such terms as it may deem appropriate
without prejudicing its rights against the indemnifying party provided for
herein. Nothing contained herein shall be construed to give any insurance
carrier a right of subrogation for claims paid except as such right would
otherwise exist in the absence of this Article 5. Further, for purposes of this
Section, notification from the Internal Revenue Service of an intended audit of
the Company's tax returns for any period prior to Closing Date shall be
considered notice of a claim as to which Purchaser shall promptly notify the
Shareholders' Representative referenced in Section 7.12, acting on behalf of the
Shareholders. The Shareholders shall pay for and have complete control of and
discretion in defending and/or settling the audit, and all liabilities incurred
by way of defense and settlement of the audit and claims arising thereunder
shall be paid by the Shareholders.
(b) In the event of any action or proceeding to enforce any term or
provision of this Agreement, or for the breach thereof, or to declare the rights
of the parties with respect thereto, the prevailing party shall be entitled to
receive, in addition to any other relief awarded to any party therein, all costs
and expenses (including reasonable attorneys' fees) incurred by such prevailing
party in such action or proceeding, as well as in any rehearing or appeal
thereof, as well as in the collection or enforcement of any judgment or award
therein. The prevailing party shall be determined by the tribunal in such action
or proceeding and, if not so determined, shall be determined by the then
presiding judge of the Superior Court, County of Fairfax, State of Virginia.
5.5. Limitations.
(a) Neither the Purchaser Indemnitees nor the Company Indemnitees
shall be entitled to recover any Costs under this Agreement until the aggregate
amount of the Costs suffered by the Purchaser Indemnitees or the Company
Indemnitees (as the case may be) shall exceed $25,000 (the "Minimum Loss"). Once
the Minimum Loss has been exceeded in respect of a party, the party who suffered
Costs in excess of the Minimum Loss shall be entitled to recover all Costs
starting from the first dollar up to a maximum of $70,000 for Costs incurred
under Sections 5.1 or 5.3 of this
28
Agreement and from the first dollar without a maximum limit for Costs incurred
under Section 5.2 of this Agreement. After a party has Costs which exceed the
Minimum Loss, it shall be entitled to recover any future Costs which it may
thereafter suffer without regard to the Minimum Loss limitation.
5.6. Survival of Representations and Warranties.
(a) All representations and warranties herein or in any Schedule, the
Disclosure Memorandum, any Exhibit, certificate, agreement, instrument or other
document entered into or delivered pursuant hereto shall be deemed to have been
relied upon by the other party, and except as provided in paragraph (b) below,
shall survive the execution and delivery of this Agreement and the
Reorganization and payment therefor until the first (1st) anniversary of the
Closing Date (the "Cut-Off Date"). Except as provided in paragraph (b) below, no
claim of misrepresentation or breach of any representation or warranty may be
made by any party hereunder unless notice of such claim is given to the party
claimed against on or before the Cut-Off Date. In addition, no claim for a
breach of an agreement, covenant or undertaking contained herein may be made by
any party hereunder unless notice of such claim is given to the party claimed
against before the Cut-Off Date; provided that the foregoing limitation shall be
inapplicable to any obligations arising under the Registration Rights Amendment.
There shall be no time limitation for a claim arising under Section 5.2 of this
Agreement.
(b) The representations and warranties made in Sections 2.1(o)
(Employee Benefit Plans) and 2.1(r) (Taxes) shall survive the execution and
delivery of this Agreement and the Reorganization and payment therefor until ten
(10) days following the expiration of the time period which is prescribed by the
applicable federal, state or local statute of limitations with respect to which
a third party may make a claim relating to such matters. For purposes of the
preceding sentence, the duration of an applicable statute of limitation shall be
unaffected by any extension or other agreement entered into or consented to in
writing by Purchaser affecting such duration.
(c) The limitations in paragraphs (a) and (b) above shall be construed
to apply solely to claims for indemnification under this Article 5 that arise
out of an inaccurate representation or warranty and only to the extent such
claims arise out of an inaccurate representation or warranty.
(d) A Company Indemnitee may only take action under this Article 5 to
pursue an indemnification claim if such action has first been approved by a
majority in interest of the Shareholders (such interest to be computed on the
basis of the respective ownership interest of the Shareholders in the Common
Stock immediately prior to the Closing Date).
29
ARTICLE 6
TERMINATION AND ABANDONMENT
6.1. Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned:
(a) at any time prior to the Closing Date, by mutual consent of the
Company, on the one hand, and of Purchaser, on the other hand;
(b) by either Purchaser or the Company of the Closing Date shall not
have occurred by June 30, 1997, unless extended by mutual agreement of Purchaser
and the Company;
(c) by Purchaser, if there has been a breach of a representation or
warranty in this Agreement (including the Schedules and Exhibits) or any
certificate, instrument or other document delivered pursuant hereto by the
Company or the Shareholders in any material respect, or a breach by the Company
or the Shareholders of any covenant of the Company or the Shareholders set forth
herein in any material respect, or a failure of any condition to which the
obligations of Purchaser hereunder are subject;
(d) by the Company, if there has been a breach of a representation or
warranty in this Agreement (including the Schedules and Exhibits) or any
certificate, instrument or other document delivered pursuant hereto by Purchaser
in any material respect, or a breach by Purchaser of any covenant of Purchaser
set forth herein in any material respect, or a failure of any condition to which
the obligations of the Company hereunder are subject;
(e) by Purchaser, on the one hand, or the Company, on the other hand,
if any court of competent jurisdiction in the United States, or other United
States governmental body shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting the
Reorganization and such order, decree, ruling or other action shall have become
final and unappealable.
6.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 6.1 hereof by Purchaser, on the one hand, or the
Company, on the other hand, written notice thereof shall forthwith be given to
the other party or parties specifying the provision hereof pursuant to which
such termination is made, and this Agreement shall become void and have no
effect (other than Section 3.2 hereof, which shall survive termination), and
there shall be no liability hereunder on the part of the Purchaser, the Company
or the Shareholders, provided that if Purchaser terminates this Agreement
pursuant to Section 6.1(c) or if the Company terminates this Agreement pursuant
to Section 6.1(d) (ii), then the terminating party shall have the right to
pursue all of its legal remedies for breach of contract. Termination of this
Agreement shall have no effect on the obligations of the parties arising under
Section 3.2 hereof.
30
6.3. Extension; Waiver. At any time prior to the Closing Date, the parties
hereto, by action taken by or on behalf of the respective Boards of Directors of
the Company or Purchaser, may (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or (iii)
waive compliance with any of the agreements or conditions contained herein. Any
such action taken by the Company prior to the Closing Date shall be binding on
the Shareholders. Any agreement on the part of any party to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party for whose benefit such representation and warranty,
agreement or condition was made or established.
ARTICLE 7
MISCELLANEOUS
7.1. Fees and Expenses. All costs and expenses incurred in connection with
this Agreement and the consummation of the transactions contemplated hereby
shall, if incurred by Purchaser, be paid by Purchaser and shall, if incurred by
the Company, be paid by the Company.
7.2. Public Announcements. Neither the Company nor the Shareholders shall
issue any press release or otherwise make any public statement with respect to
the transactions contemplated hereby without the prior written consent of
Purchaser. Any such press release or other public statement or disclosure shall
be made only by and in the sole discretion of Purchaser.
7.3. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered in person or
mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows:
(a) if to the Company or the Shareholders, to them at:
Technology Solutions, Inc.
00000 Xxxxxxx Xxxx, Xxxxx #0
Xxxxxxxxx, XX 00000-0000
Attention: Xx. Xxxx Xxxxxxxxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
31
(b) if to Purchaser, to it at:
Mitek Systems, Inc.
00000 Xxxxxxx Xxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attention: Xx. Xxxx X. Xxxxxxx, CEO
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
with a copy to:
Xxxx, Forward, Xxxxxxxx & Scripps LLP
000 Xxxx Xxxxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
or to such other Person or address as any party shall specify by notice in
writing to each of the other parties. All such notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery unless if mailed in which case on the third business day after the
mailing thereof except for a notice of a change of address, which shall be
effective only upon request thereof.
7.4. Entire Agreement. This Agreement and the Schedules, Exhibits and other
documents referred to herein or delivered pursuant hereto collectively contain
the entire understanding of the parties hereto with respect to the subject
matter contained herein and supersede all prior and contemporaneous agreements
and understandings, oral and written, with respect thereto.
7.5. Binding Effect; Benefit; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors, heirs and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Nothing
in this Agreement, expressed or implied, is intended to confer on any person,
other than the parties hereto or their respective successors and permitted
assigns and other than Purchaser Indemnitees and Company Indemnitees (to the
extent provided in Article 5), any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.6. Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified and supplemented in writing by the parties hereto in
any and all respects before the Closing Date by action taken by the respective
Boards of Directors of Purchaser and the Company or by the respective officers
authorized by such Boards of Directors, and any such action
32
taken by the Company before the Closing Date shall be binding on all of the
Shareholders. Subject to applicable law, this Agreement may be amended, modified
and supplemented in writing by the parties hereto in any and all respects after
the Closing Date by the Board of Directors of Purchaser or officers of Purchaser
authorized by Purchaser's Board of Directors, on the one hand, and by a majority
in interest of the Shareholders (such interest to be computed on the basis of
the respective ownership interests of the Shareholders in the Common Stock
immediately prior to the Closing Date), on the other hand.
7.7. Further Actions. Each of the parties hereto agrees that, subject to
its legal obligations, it will use its best efforts to fulfill all conditions
precedent specified herein, to the extent that such conditions are within its
control, and to do all things reasonably necessary to consummate the
transactions contemplated hereby.
7.8. Headings. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only, do not constitute
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.
7.9. Counterparts; Exchange of Signature Pages by Telecopier. This
Agreement may be executed in several counterparts, each of which shall be deemed
to be an original, and all of which together shall be deemed to be an original,
and all of which together shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument. This Agreement may
be executed by exchange of signature pages transmitted via telecopier with the
same force and effect as if original signatures on such pages were exchanged.
7.10. Applicable Law. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to the conflict of laws rules thereof.
7.11. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions
contained in this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
33
IN WITNESS WHEREOF, each of Purchaser, the Company and the Shareholders
have executed this Agreement as of the date first above written.
MITEK SYSTEMS, INC.
By:/s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: Chairman of the Board
TECHNOLOGY SOLUTIONS, INC.
By:/s/ Xxxx Xxxxxxxxxx
Name: Xxxx Xxxxxxxxxx
Title: Vice President
SHAREHOLDERS
/s/ Xxxx Xxxxxxxxxx
Xxxx Xxxxxxxxxx
/s/ Xxx Xxxxxxxxxx
Xxx Xxxxxxxxxx
/s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx
/s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx
34
TABLE OF CONTENTS
ARTICLE 1 THE REORGANIZATION AND RELATED MATTERS..............................1
1.1. Definitions....................................................1
1.2. Basic Transaction..............................................3
(a) Purchase and Sale of Assets............................3
(b) Assumption of Liabilities..............................3
(c) Purchase Price ........................................3
(d) The Closing............................................3
1.3. Transfer of Title to the Acquired Assets.......................3
1.4. Employees......................................................3
1.5. Escrow Deposit.................................................4
1.6. Further Assurances. ..........................................4
1.7. Collection of Acquired Assets..................................4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES......................................4
2.1. Representations and Warranties of the Company and the
Shareholders...................................................4
(a) Due Organization, Good Standing and Corporate Power....5
(b) Authorization and Validity of Agreement................5
(c) Capitalization.........................................5
(d) Consents and Approvals; No Violations .................6
(e) Company Financial Statements...........................7
(f) Absence of Undisclosed Liabilities.....................7
(g) Accounts Receivable ...................................8
(h) Inventories............................................8
(i) All Assets of Business; Condition of Acquired Assets...8
(j) Title to Properties; Encumbrances......................8
(k) Absence of Certain Changes and Events..................9
(l) Minute Books ..........................................9
(m) Compliance with Laws...................................9
(n) Material Contracts.....................................11
(o) Litigation.............................................12
(p) Employment Relations and Agreements....................12
(q) Relations with Certain Vendors.........................12
(r) Taxes..................................................12
(s) Intellectual Properties................................15
(t) Insurance..............................................16
(u) Transactions with Management...........................16
(v) Broker's or Finder's Fee...............................16
(w) Statements and Other Documents Not Misleading..........16
2.2. Representations and Warranties of Shareholders.................16
2.3. Representations and Warranties of Purchaser. .................17
i
(a) Due Organization; Good Standing and Corporate Power....18
(b) Authorization and Validity of Agreement................18
(c) Capitalization of Purchaser............................18
(d) Validity of Shares to be Issued........................18
(e) Consents and Approvals.................................19
(f) Reports and Financial Statements.......................19
(g) Absence of Certain Changes and Events..................20
(h) Litigation.............................................20
(i) Form S-3 Eligibility...................................20
(j) Broker's or Finder's Fee...............................20
(k) Statements and Other Documents Not Misleading..........20
ARTICLE 3 COVENANTS...........................................................21
3.1. Access to Information; Notice of Changes.......................21
3.2. Confidentiality................................................21
3.3. Conduct of the Business of the Company Pending the
Closing Date...................................................21
3.4. Best Efforts...................................................23
3.5. No Solicitation of Other Offers................................23
3.6. Notice of Default..............................................23
3.7. Agreement to Execute Certain Documents.........................24
3.8. Disposition of Company.........................................24
3.9. Cooperation on Tax Matters.....................................24
ARTICLE 4 CONDITIONS PRECEDENT TO REORGANIZATION..............................25
4.1. Conditions Precedent to Obligations of Purchaser and the
Company..........................,.............................25
(a) Injunction.............................................25
(b) Statutes ..............................................25
4.2. Conditions Precedent to Obligations of Purchaser...............25
(a) Accuracy of Representations and Warranties.............25
(b) The Company's Performance..............................25
(c) Legal Actions..........................................25
(d) No Material Changes....................................26
(e) Third Party Consents...................................26
(f) Execution of Escrow Agreement..........................26
(g) Execution of Employment Agreements.....................26
(h) Execution of Registration Agreement....................26
(i) Execution of Xxxx of Sale..............................26
(j) Contract Consents......................................26
(k) Discharge of Contract Obligations......................26
4.3. Conditions Precedent to Obligation of the Company and
Shareholders...................................................26
(a) Accuracy of Representations and Warranties.............26
(b) Purchaser's Performance................................26
ii
(c) No Material Changes....................................27
(d) Execution of Registration Agreement....................27
ARTICLE 5 SURVIVAL; INDEMNIFICATION; EXPENSES.................................27
5.1. Indemnification by Shareholders................................27
5.2. Indemnification by Company and Shareholders....................28
5.3. Indemnification by Purchaser...................................28
5.4. Conduct of Litigation..........................................28
5.5. Limitations....................................................29
5.6. Survival of Representations and Warranties.....................30
ARTICLE 6 TERMINATION AND ABANDONMENT.........................................31
6.1. Termination....................................................31
6.2. Effect of Termination .........................................31
6.3. Extension; Waiver..............................................32
ARTICLE 7 MISCELLANEOUS.......................................................32
7.1. Fees and Expenses..............................................32
7.2. Public Announcements...........................................32
7.3. Notices........................................................32
7.4. Entire Agreement...............................................33
7.5. Binding Effect; Benefit; Assignment............................33
7.6. Amendment and Modification.....................................33
7.7. Further Actions ...............................................34
7.8. Headings.......................................................34
7.9. Counterparts; Exchange of Signature Pages by Telecopier........34
7.10. Applicable Law .................................................34
7.11. Severability....................................................34
EXHIBITS
Exhibit A - Disclosure Memorandum
SCHEDULES
Schedule 1.2(c) - Allocation of Aggregate Merger Consideration
Schedule 1.5 - Pledge and Escrow Agreement
Schedule 2.1(b) - Registration Agreement
Schedule 2.1(c)(i) - Company Options Outstanding
Schedule 2.2(i) - Shareholder Information
Schedule 2.3(f) - Commission Filings
iii
EXHIBIT A
Disclosure Memorandum
Schedule 1.2(c)
Allocation of Aggregate Merger Consideration
Schedule 1.5
Pledge and Escrow Agreement
Schedule 2.1(b)
Registration Agreement
Schedule 2.1(c)(i)
Company Options Outstanding
Schedule 2.2(i)
Shareholder Information
Name Shareholder Information State of Residence
Xxx Xxxxxxxxxx 10,200 Virginia
Xxxxx Xxxxxx 9,800 Virginia
Schedule 2.3(f)
Commission Filings
Form 10k for year ended September 30, 1996
Final Prospectus dated November 22, 1996
Forms 10Q for periods ended December 31, 1996 and March 31, 1997
Proxy Statement dated January 9, 1997, and Annual Report dated January 9, 1997
