COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT made as of this 12th day of April, 2005, by
and among INNOVATIVE CONCEPTS, INC., a Virginia corporation (the "Company"), ICI
ACQUISITION CORP., a Delaware corporation (the "Purchaser"), and XXXX XXXXXXXXX
(the "Stockholder").
W I T N E S S E T H:
WHEREAS, the Stockholder in the aggregate owns or has the right to acquire
101,800 shares of non-voting Class A common stock, $0.001 par value per share
and 7,000 shares of voting Class B common stock, $0.70 par value per share
(collectively the "Common Stock"), representing all of the outstanding capital
stock of the Company other than those acquired by the Company from Tell Gates
and held in escrow pursuant to the Gates Stock Escrow; and
WHEREAS, the Purchaser and the Stockholder have agreed to the sale by the
Stockholder to the Purchaser of all of the outstanding Common Stock of the
Company upon the terms and conditions hereinafter set forth; and
WHEREAS, the parties intend that this Agreement shall constitute the
definitive agreement referenced in the Letter of Intent (the "LOI"), Standstill
Agreement (the "Standstill Agreement") and Escrow Agreement (the "Escrow
Agreement"), each dated as of March 8, 2005, previously executed by and among
the parties.
NOW, THEREFORE, in consideration of the covenants, warranties and mutual
agreements herein set forth, and in reliance upon the representations and
warranties contained herein, the parties do hereby agree as follows:
1. Definitions
1.1 Definition of Certain Terms.
As used herein, the following terms shall have the following meanings:
Affiliate: means with respect to any Person, any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
Agreement: means this Stock Purchase Agreement.
Applicable Law: means with respect to any Person, any statute, law,
ordinance, policy, guidance, rule, administrative interpretation, regulation,
order, writ, injunction, directive, judgment, decree or other requirement of any
Governmental Authority of the United States, or other foreign jurisdiction
applicable to such Person or any of its Affiliates or ERISA Affiliates or any of
their respective properties, assets, officers, directors, employees, consultants
or agents (in connection with such officer's, director's, employee's,
consultant's or agent's activities on behalf of such Person or any of its
Affiliates or ERISA Affiliates).
Closing: as defined in Section 4.1.
Closing Date: as defined in Section 4.1.
Company: as defined in the Preamble to this Agreement.
Code: means the Internal Revenue Code of 1986, as amended, together with
the U.S. Treasury rulings and regulations promulgated thereunder.
Contracts: means all contracts, agreements, arrangements, options, leases,
licenses, sales and accepted purchase orders, commitments and other instruments
of any kind, whether written or oral, which relate to the Company and to which
the Company is a party or is otherwise bound by, or subject to on the Closing
Date, including the Material Contracts.
Damages: means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement including
reasonable costs, fees and expenses of attorneys, accountants, consultants and
other agents or independent contractors incurred in investigating, preparing for
and defending any thereof, and for avoidance of doubt references in this
Agreement to Damages include Environmental Liabilities.
Deposit: means the Cash Deposit being held under the Escrow Agreement.
Effective Date: as defined in Section 4.1.
Employee Benefit Plan: means any pension, retirement, profit-sharing,
deferred compensation, bonus or other incentive plan, or other employee benefit
program, arrangement, agreement or understanding, or medical, vision, dental or
other health plan, or life insurance or disability plan, or any other employee
benefit plan, including, without limitation, any Employee benefit plan" as
defined in Section 3(3) of ERISA to which the Company contributes or is a party
or is bound or under which it may have liability and which employees or former
employees of the Company (or their beneficiaries) are eligible to participate or
derive a benefit.
Environmental Law: means all laws, regulations, statutes, codes, permits,
orders, decrees, rules, judgments and decisions, including applicable precedent
and principles of common law, relating to the protection of human health or the
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environment, including, but not limited to, those relating to (a) the release,
threatened release, containment, investigation, removal, remediation, response,
cleanup or abatement of any Hazardous Material; (b) the manufacture, generation,
formulation, processing, labeling, distribution, introduction into commerce,
use, treatment, handling, storage, recycling, disposal or transportation of any
Hazardous Material; (c) the protection, pollution or cleanup of the Environment;
(d) the condition of any building, facility, fixture or other structure; (e) the
protection of the health and safety of employees or the public.
Environmental Liabilities: means all Damages incurred (i) to comply with,
or by reason of the violation of, any Environmental Law; (ii) to investigate,
respond to, remediate or otherwise which result from the release or threatened
release of a Hazardous Material; or (iii) by reason of any injury to person,
property or the natural resources caused by or resulting from any environmental
conditions present at, created by, or arising out of the current or former
operations of the Company or of any prior owner or operator of a facility or
site at which the Company operates, has operated or disposes or has disposed of
any Hazardous Material.
ERISA: means the Employee Retirement Income Security Act of 1974, as
amended.
Escrow Agent: means the firm of Xxxxxxx, Xxxxxxxxx & Xxxxxxxx, LLP
Escrow Agreement: means the agreement among the Escrow Agent, Stockholder,
the Company and the Purchaser in the form attached hereto as Exhibit C. Upon
execution of this Agreement, the Escrow Agreement between the Company and the
Purchaser in the form attached hereto shall be executed and delivered to each
party.
GAAP: means generally accepted accounting principles in the United States
as in effect from time to time and applied consistently throughout the periods
involved.
Gates Note: means the Promissory Note dated September 1, 2004, in the
original principal amount of $4,811,920.00, reflecting the balance of the
purchase price due to Tell Gates in connection with the Gates Stock Purchase
Transaction.
Gates Stock Escrow: means the Common Stock from time to time held in escrow
pursuant to an Escrow Agreement dated September 19, 2003, by and among the
Company, Tell Gates and Xxxxxxxx, Xxxxx and Xxxxxxxxxxx, P.C. (as escrow agent),
to secure payment of the Gates Note and the Gates Stock Purchase Agreement.
Gates Stock Purchase Agreement: means the Term Sheet dated July 3, 2003, by
and between the Company and Tell Gates for the Company's purchase of all shares
of the Company's stock previously owned by Xx. Xxxxx.
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Gates Stock Purchase Transaction: means the transaction set out in the
Gates Stock Purchase Agreement, pursuant to which the Company acquired all the
issued and outstanding Common Stock of Tell Gates.
Governmental Authority: means any foreign, domestic, federal, territorial,
state or local governmental authority, quasi-governmental authority,
instrumentality, court, government or self-regulatory organization, commission,
tribunal or organization or any regulatory, administrative or other agency, or
any political or other subdivision, department or branch of any of the
foregoing.
Hazardous Material: means (a) any substance, pollutant, containment
chemical, raw material product, byproduct, waste or other material which is now
or hereafter classified, identified, listed or regulated in any concentration
under or by any Environmental Law, now or hereafter in effect, or other
comparable laws; (b) any petroleum, hydrocarbon, asbestos containing material,
lead containing paint or plumbing, polychlorinated biphenyls, reactive materials
or radon; or (c) any other substance or material or waste which is or becomes
subsequently the subject of regulatory action by any Government Authority
pursuant to any applicable Environmental Law.
Indebtedness: of any Person means all obligations of such Person (a) for
borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) under capital leases and (d) in the nature of guarantees of the
obligations described in clauses (a) through (c) above of any other Person.
Intellectual Property: means any patent, patent application and invention,
trademark, trade name, trademark or trade name registration or application,
copyright or copyright registration or application for copyright registration,
servicemark, brand xxxx or brand name or any pending application related
thereto, or any trade secret, proprietary know-how, programs or processes or any
similar rights relating to the Company, and each license or licensing agreement
for any of the foregoing.
Inventory: means all items of inventory owned or maintained by the Company
including all supplies, containers, packaging materials, raw materials, work-in
progress, finished goods and samples of the Company, and any claims, credits and
rights of recovery with respect to the Inventory.
Knowledge of Purchaser, Company or Stockholder: means the actual knowledge
of any of: (a) Stockholder, as to matters stated by Stockholder or the Company;
and (b) the Chairman of the Board and the Chief Executive Officer of Purchaser
as to matters stated by Purchaser, in each case including the knowledge they
would have had had they made commercially reasonable inquiry and investigation.
Commercially reasonable inquiry shall include, without limitation, making
reasonable inquiries of the Person(s) responsible within the Company or within
Purchaser (as applicable) for the subject matter to which the relevant statement
relates.
Liability: means with respect to any Person, any liability or obligation of
such Person of any kind, character or description, whether known or unknown,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated,
secured or unsecured, joint or several, due or to become due, vested or
unvested, executory, determined, determinable or otherwise.
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Lien: means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such asset.
Loss: as defined in Section 12.2.
Material: means that any deviation from the applicable matter set out in
the Agreement, or any error in a given statement, alone or in the aggregate with
other matters contained in the Agreement, will have a Material Adverse Effect.
Material Adverse Effect: means any circumstance, change or effect that,
individually or when taken together with all other such circumstances, changes
or effects is materially adverse to the Company.
Permitted Liens: means (i) Liens for Taxes or governmental assessments,
charges or claims the payment of which is not yet due, or for Taxes the validity
of which are being contested in good faith by appropriate proceedings; (ii)
statutory and any existing contractual Liens of landlords, Liens of the
Company's institutional lender under its existing line of credit, and Liens of
carriers, warehousemen, mechanics, materialmen and other similar Persons and
other Liens imposed by Applicable Law incurred in the ordinary course of
business for sums not yet delinquent or being contested in good faith; (iii)
Liens relating to deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security or to secure the performance of leases, trade contracts or other
similar agreements; and (iv) Liens securing executory obligations under any
Lease that constitutes an "operating lease" under GAAP.
Person: means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization or other legal entity.
Tax or Taxes: means any form of taxation, levy, duty, charge, contribution,
withholding or impost of whatever nature (including any related fine, penalty,
cost, surcharge or interest) whenever and wherever imposed or assessed by, or
payable to, any Governmental Authority.
Tax Return: means all notices, elections, accounts, computations,
documentation, returns, reports, forms or other information required to be filed
or which ought to be filed with respect to any Tax.
2. Purchase and Sale of Stock
In reliance on the representations and warranties contained herein and
subject to all of the terms and conditions hereof, the Stockholder hereby agrees
to sell, assign, transfer and deliver to the Purchaser, and the Purchaser hereby
agrees to purchase from the Stockholder, on the Closing Date, all of the issued
and outstanding Common Stock of the Company (the "Stock"). The Stockholder will
exercise, effective as of Closing, all then issued and outstanding stock options
for the Company's common stock. The exercise price for any such stock options,
to the extent not previously paid to the Company, shall be credited against the
Purchase Price.
3. Purchase Price.
Purchase Price. In full consideration of the sale of the Stock and subject
to the terms and conditions hereinafter set forth, the Purchaser hereby agrees
at the Closing to pay to the Stockholder Twenty Million Dollars ($20,000,000) by
wire transfer in immediately available funds.
4. The Closing.
4.1 Place and Date
The closing of the transactions contemplated by this Agreement shall take
place at the offices of Seyfarth Xxxx LLP, 815 Connecticut Avenue, N.W.,
Washington, D.C., or at such other place as the parties may agree upon in
writing, on or before April 12, 2005, (or at such earlier time as the parties
agree upon in writing). The closing is referred to in this Agreement as the
"Closing" and the date of the closing is referred to herein as the "Closing
Date". Unless prohibited by law, regardless of the Closing Date, the effective
date of the sale of the Common Stock shall be deemed to be March 31, 2005 (the
"Effective Date"), with Purchaser having all ownership rights and obligations
beginning on April 1, 2005.
4.2 Documents Delivered or to be Delivered by the Stockholder and the
Company, and Documents to be Amended.
(a) Upon execution of this Agreement: (i) the parties acknowledge that the
Standstill Agreement, attached hereto as Exhibit A, shall continue in effect
until the earlier of the termination of this Agreement or Closing, and is deemed
to be amended accordingly; and (ii) Section 4 of the Escrow Agreement, attached
hereto as Exhibit C, shall be amended as set out in Exhibit C-1 attached hereto.
(b) Purchaser acknowledges that it has received copies of non-competition
agreements previously executed in favor of the Company by those Company
employees set out in Schedule 4.2(b) (the "Non-competition Agreements"), and the
Company and Stockholder affirm that (i) the copies of the Non-competition
Agreements provided are true and accurate, and (ii) none of the Non- competition
Agreements have been modified.
(c) At the date of this Agreement, a copy of resolutions of the Board of
Directors of the Company authorizing the execution, delivery and performance of
this Agreement, the Escrow Agreement, the Standstill Agreement, and a
certificate of its secretary or assistant secretary dated the date of this
Agreement, to the effect that such resolutions were duly adopted and are in full
force and effect shall be delivered to the Purchaser;
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(d) At the Closing, the Stockholder or the Company, as the case may be,
shall deliver to the Purchaser the following:
(i) a certificate of the Company's secretary or its assistant secretary
dated the Closing Date to the effect that the resolutions referred to
in Section 4.2(c) are in full force and effect.
(ii) stock certificates for all the Stock or, if applicable, an affidavit
for any lost stock certificate (including appropriate
indemnifications) in a form acceptable to Purchaser in its reasonable
business judgment.
(iii)the opinions, certificates and other documents or instruments
specified in Section 8.1 of this Agreement; and
(e) the Stockholder and the Company shall each execute such other documents
and instruments and take such action as may be necessary or reasonably requested
by the Purchaser to fully vest in Purchaser full title to the Stock and place
the Purchaser in possession and control of the Company and its assets.
4.3 Documents to be Delivered by the Purchaser.
(a) Upon execution of this Agreement, the Purchaser shall execute the
Escrow Agreement in the form attached hereto as Exhibit C and deliver it to the
Company and shall deliver to the Stockholder a copy of resolutions of the Board
of Directors of the Purchaser authorizing the execution, delivery and
performance of this Agreement, the Escrow Agreement by the Purchaser, and a
certificate of its secretary or assistant secretary, to the effect that such
resolutions were duly adopted and are in full force and effect.
(b) At the Closing, the Purchaser shall deliver to the Stockholder:
(i) a certificate of the Purchaser's secretary or its assistant secretary
dated the Closing Date to the effect that the resolutions referred to
in Section 4.3(a)(ii) are in full force and effect;
(ii) the opinions, certificates and other documents or instruments
specified in Section 8.2 of this Agreement; and
(iii) the Purchaser shall deliver to the Stockholder the Purchase Price.
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4.4 Form of Documents.
Unless specifically otherwise provided herein, all documents to be
delivered pursuant to this Section 4 by one party to the other party to this
Agreement shall be in form and substance reasonably satisfactory to such other
party and its counsel.
5. Representations and Warranties of the Stockholder and the Company.
The Stockholder and the Company, jointly and severally, (except with
respect to Sections 5.2 and 5.3 as they pertain to the legal capacity and
actions of the Stockholder, in which case the Stockholder) represent and warrant
to the Purchaser as of the date hereof and as of the Closing Date, as follows:
5.1 Organization and Authority.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with all
requisite power and authority (corporate and governmental) to own, operate and
lease its properties and to carry on its business as now being conducted, except
where the failure to have such power and authority would not have a Material
Adverse Effect on the Company. Except as set forth in Schedule 5.1, the Company
is duly licensed or qualified to do business and is in good standing in each
jurisdiction in which it is required to be so licensed or qualified, except
where the failure to be so licensed or qualified would not have a Material
Adverse Effect on the Company. Schedule 5.1 sets forth the jurisdictions in
which the Company is incorporated and licensed or qualified to do business.
5.2 Authorization of Agreements.
The Stockholder has the legal capacity to execute, deliver and perform its
obligations under this Agreement (including the delivery of the Stock) and the
Non-Competition Agreement. This Agreement has been duly executed and delivered
by the Stockholder and constitutes the legal, valid and binding obligation of
the Stockholder enforceable against him in accordance with its terms, except as
the enforcement thereof may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally now or hereafter in effect and subject to the application of
equitable principles and the availability of equitable remedies. The Company has
the power and authority to execute, deliver and perform its obligations under
this Agreement, the Escrow Agreement and the Standstill Agreement. This
Agreement, the Escrow Agreement and the Standstill Agreement have been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with their terms, except as the enforcement thereof may be subject to or limited
by bankruptcy, insolvency, reorganization, moratorium or other laws affecting
the enforcement of creditors' rights generally now or hereafter in effect and
subject to the application of equitable principles and the availability of
equitable remedies.
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5.3 Capital Stock.
The authorized, issued and outstanding capital stock of the Company are set
forth on Schedule 5.3. All of the outstanding capital stock of the Company has
been duly authorized and is validly issued, fully paid and nonassessable. To
Stockholder's and the Company's knowledge, all outstanding capital stock and any
other outstanding securities of the Company were issued in compliance with all
federal and state securities laws. Stockholder is the lawful, registered and
beneficial owner of all the Common Stock, subject only to the Gates Stock
Escrow. The Stockholder has, and on the Closing Date will convey to the
Purchaser, good title to the Common Stock free and clear of any security
interest, claim, Lien, pledge, option, or encumbrance whatsoever or any
restrictions except for restrictions under applicable securities laws and the
Gates Stock Escrow. There are, or as of the Closing Date, there shall be, no
rights, subscriptions, warrants, options, conversion rights, commitments or
agreements of any kind authorized or outstanding to purchase or otherwise
acquire from the Stockholder, the Company, or any other person, any shares of
stock, or securities or obligations of any kind convertible into or exchangeable
for any shares of stock, of any class of the Company or any other equity
interest in the Company, except in connection with the Gates Stock Escrow and
the Gates Stock Purchase Transaction. There is no proxy, or any agreement,
arrangement or understanding of any kind authorized or outstanding which
restricts, limits or otherwise affects the right to vote any share of Common
Stock, subject only to any rights of Tell Gates in the event of an Event of
Default under the Gates Note or the Gates Stock Purchase Agreement.
5.4 No Conflicts.
Except as set out in Schedule 5.4, the execution, delivery and performance
of this Agreement, the Non-Competition Agreements, the Standstill Agreement, the
Escrow Agreement and any other agreement or document contemplated herein or
therein and the consummation of all of the transactions contemplated hereby and
thereby: (i) do not and will not require the consent, waiver, approval, license,
designation or authorization of, or declaration with, any court to which the
Company is subject or any Governmental Authority; and (ii) do not and will not,
with or without the giving of notice or the passage of time or both, violate or
conflict with or result in a breach or termination of any provision of, or
constitute a default under, or accelerate or permit the acceleration of the
performance required by the terms of, or result in the creation of any Lien upon
any of the assets of the Company (except for Permitted Liens) pursuant to, or
otherwise give rise to any liability or obligation under, the certificate of
incorporation or bylaws of the Company, any agreement, mortgage, deed of trust,
indenture, license, permit or any other agreement or instrument or any order,
judgment, decree, statute or regulation to which the Stockholder or the Company
is a party or by which the Stockholder or the Company or any of their assets may
be bound, except for any such violations, conflicts, breaches, defaults or other
occurrences which would not have a Material Adverse Effect on the Company, and
(iii) do not and will not require the consent of any natural person, firm,
partnership, association, corporation or trust, except for any such consent
which would not have had a Material Adverse Effect on the Company.
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5.5 Financial Statements.
(a) Schedule 5.5 sets forth the reviewed financial statements of the
Company for the year ended approximately September 27, 2002, the audited
financial statements of the Company for the years ended September 26, 2003 and
October 1, 2004, and the unaudited financial statements for the three months
ended December 31, 2004 ("Financial Statements").
(b) Except as set forth on Schedule 5.5, for the relevant periods, the
financial statements: (1) are complete and correct in all material respects; (2)
present fairly the consolidated financial position of the Company at such dates
and the results of operations and changes in financial position for the
respective periods ended on such dates; and (3) are in conformity with generally
accepted accounting principles applied on a consistent basis; and (4) are in
accordance with the books and records maintained by the Company in all material
respects.
(c) Except as set forth on Schedule 5.5, as of December 31, 2004, the
Company had no liabilities, commitments or obligations of any nature, whether
absolute, accrued, contingent or otherwise, not shown and adequately provided
for in the Financial Statements as of such date or in the Schedules to this
Agreement or in the Notes to the Financial Statements.
5.6 Taxes.
The Company (and any predecessor of the Company) has been a validly
electing S corporation within the meaning of Code Sections 1361 and 1362 since
1999 for all Federal, state and local income tax purposes, and the Company and
the Stockholder shall not revoke or otherwise terminate the Company's election
to be taxed as an S corporation up to and including the Closing Date.
Except with respect to Xxxxxx Research, Inc., a wholly owned subsidiary of
the Company, since 1986, the Company has not acquired stock of any other
corporation, has not formed any subsidiary; and the Company has not in the past
10 years acquired assets from another corporation either in a tax free or
taxable transaction. The Company has never been a member of another consolidated
group within the meaning of Code Sections 1502 and 1504.
True and correct copies of the Company's federal and state income tax
returns for the years ended 2002 and 2003, have been delivered to the Purchaser.
All tax returns (including information returns) required by any jurisdiction to
have been filed by or with respect to the Company have been timely filed, and
all taxes shown due on such returns have been paid.
Except as set forth in Schedule 5.6, all liabilities of the Company to any
jurisdiction for taxes of every kind and nature, including interest thereon and
penalties with respect thereto, (collectively "Taxes") relating to any period
ending on or prior to December 31, 2004, have been timely paid by the Company or
are accrued and provided for in the Financial Statements for the relevant
periods. Any liability for Taxes incurred by the Company since December 31, 2004
was incurred in the ordinary course of business.
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Except as set forth in Schedule 5.6, the U.S. federal income tax returns
and state and foreign income tax returns of the Company have not been audited by
the Internal Revenue Service or other taxing authority within the past five
years. Neither the Internal Revenue Service nor any state, local or other taxing
authority has proposed any additional taxes, interest or penalties with respect
to the Company; there are no pending or, to the knowledge of the Company and the
Stockholder, threatened tax claims or assessments; and there are no pending or,
to the knowledge of the Company and the Stockholder, threatened tax examinations
by any taxing authorities.
The Company has not given any waivers of rights (which are currently in
effect) under applicable statutes of limitations with respect to the federal
income tax returns for any fiscal year.
5.7 Title to Assets.
Except as set forth in Schedule 5.7, the Company has valid title to all of
its personal property and valid leasehold interests in all real and personal
property leased by it, free and clear of all claims, Liens and other
encumbrances of any kind whatsoever, excluding (i) any Permitted Liens, which,
in the aggregate, do not exceed $50,000; (ii) defects, zoning restrictions,
restrictions on use, irregularities, encumbrances or clouds on title of real
property, which do not materially impair the property affected thereby for the
purpose for which it was acquired or leased; and (iii) any mortgages, pledges,
security interests, restrictions and other encumbrances caused by parties other
than the Company or the Stockholder relating to any leased real property, which,
in the aggregate, do not materially affect the use and enjoyment of such leased
real property by the Company. The Company and Stockholder have received no
written notice of, nor, to the Company's and Stockholder's knowledge, any other
notice, and, to the Company's and Stockholder's knowledge, there is no
instrument, easement, license or grant of record, applicable zoning or building
law, ordinance or administrative regulation or other impediment of any kind
prohibits or interferes with, limits or impairs, or would, if not permitted by
any prior nonconforming use, prohibit or interfere with or limit or impair, the
use, operation, maintenance of, or access to, or the value of, the real or
personal property owned or leased by the Company as presently used, operated,
maintained and accessed by the Company to carry on its business as presently
conducted. All of the assets and properties owned or leased by the Company are
(i) sufficient and adequate to carry on its business as presently conducted;
(ii) are in as good condition and repair as necessary to carry on its business
as presently conducted, normal wear and tear excepted, and are in a state of
maintenance, repair and operating condition required for the proper operation
and use thereof as necessary to carry on its business as presently conducted;
and (iii) comply with all applicable federal, state or local laws, ordinances,
rules and regulations and with the terms and conditions of all leases and other
agreements affecting or relating to any such property, except where the
noncompliance with any of the foregoing does not have a Material Adverse Effect
on the Company.
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5.8 Real Property.
The Company does not own any real property. Schedule 5.8 sets forth a true
and complete list of all leases of real property to which the Company is a
party. Except as set forth in Schedule 5.8, the Company enjoys quiet possession
under all of its leases of real property, each of which is enforceable in
accordance with its terms against the lessor thereunder and (a) the Company is
not in default under the terms of any of said leases; and (b) no condition
exists and no event has occurred which, with or without the passage of time or
the giving of notice or both, could constitute such a default by the Company or,
to the Company's or to Stockholder's knowledge, any landlord.
5.9 Personal Property.
Schedule 5.9 hereto sets forth a true and complete list of all items of
material personal property owned or leased by the Company and the location of
each such item. Except as may be set out in Schedule 5.9, no shortage or damage
exists in, (i) any raw materials, supplies, work in process or finished goods
owned by customers or suppliers of the Company and stored upon their premises of
the business or (ii) any other items of personal property owned by another for
which the Company is accountable to another, and any such items referred to in
clauses (i) or (ii) are described in Schedule 5.9 hereto.
5.10 Inventory
The inventory based on the Company's method of accounting as of December
31, 2004, and all additions thereto acquired since December 31, 2004 and now on
hand, consist of items which are in good condition, of a quantity and quality
usable and saleable in the ordinary course of business and are adequate and
appropriate for the business of the Company as now conducted. There is no
material obsolete nor slow moving inventory. Finished goods in such inventory
are consistent with those previously delivered to the Company's customers. The
Company and Stockholder have not received any written notice that any of the
previously delivered items contain any defects or do not conform to any
specifications. Based upon the foregoing, to the Company's and Stockholder's
knowledge, the finished goods current in inventory conform to specifications,
including without limitation all applicable governmental regulations, are free
from defects and the inventory is marketable in their current condition.
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5.11 Accounts Receivable.
All accounts receivable, net of reserves, shown on the balance sheet as of
December 31, 2004, and all accounts receivable acquired by the Company since
December 31, 2004, net of reserves established consistent with the reserves
shown on the balance sheet as of December 31, 2004, have been collected or will
be collected and are subject to no known counterclaims or setoffs, except for
unliquidated customer deposit obligations associated with milestone xxxxxxxx as
noted on Schedule 5.11. All such accounts receivable have been generated in the
ordinary course of business and reflect a bona fide obligation for the payment
of goods or services provided by the Company.
5.12 Material, Service Agreements; Other Contracts.
(a) Schedule 5.12(a) sets forth a complete list with regard to the Company
of (i) all currently outstanding bids, applications or proposals submitted by
any of them to provide materials or services with a value of $50,000 or more to
any Person and for which the award, approval or selection is pending, (ii) all
existing contracts or agreements for the provision of materials or services with
a value of $50,000 or more to which the Company is a party and which has not yet
been performed in full (the items referred to in the foregoing clauses (i) and
(ii) being herein collectively called the "Material/Service Agreements"). All of
such Material/Service Agreements are fully performable by the Company in
compliance with their terms. To the knowledge of the Company and the
Stockholder, no grounds exist for the termination or cancellation of any
Material/Service Agreement by the other party thereto, except for the
Governmental Authorities' right generally to terminate for convenience the
various Contracts with Governmental Authorities.
(b) The Company is a party to numerous Contracts, many of which are de
minimis in nature involving internal Company operations. However, except as
disclosed in Schedule 5.12(b) hereto, the Company is not a party to or bound by
any Contract which is a:
(i) contract, commitment or arrangement involving, in any one case,
$50,000 or more;
(ii) contract with a term of, or requiring performance, more than six
months from its date;
(iii)lease or lease purchase agreement, mortgage, conditional sale or
title retention agreement, indenture, security agreement, credit
agreement, pledge or option with respect to any property, real or
personal (tangible or intangible), in any capacity;
(iv) commitment, contract or undertaking for the purchase or use of
services, materials, supplies, inventory, machinery or equipment and
involving more than $50,000 in the aggregate;
(v) employment contracts or agreements;
13
(vi) sales representative or similar type agreements;
(vii) contract or agreement with any labor union or other collective
bargaining group;
(viii) note, loan, credit or financing agreement or other contract for
money borrowed, and all related security agreements and collateral documents,
including any agreement for any commitment for future loans, credit or
financing;
(ix) guarantee;
(x) contract or understanding regarding any capital expenditures in excess
of $50,000;
(xi) agency (sales or otherwise), distribution, brokerage (including,
without limitation, any brokerage or finder's agreement or arrangement with
respect to any of the transactions contemplated by this Agreement) or
advertising agreement;
(xii) contract with investment bankers, accountants, attorneys, consultants
or other independent contractors;
(xiii) shareholder agreement or contract with any stockholder (or family
member thereof), director or officer of the Company or any Affiliate of such
persons, except agreements or contracts referred to herein which relate to the
transactions contemplated by this Agreement;
(xiv) contract, commitment or arrangement which would restrain the Company
from engaging or competing in any business or to maintain the confidentiality of
any matter, except agreements made in the ordinary course of business to
maintain confidentiality of their vendors and customers;
(xv) contract, commitment or arrangement not made in the ordinary course of
business;
(xvi) permit or franchise which is material to the business of the Company,
taken as a whole or license or royalty agreement requiring an annual payment of
$50,000 or more by the Company; and
(xvii) bonus, pension, savings, welfare, profit sharing, stock option,
retirement, commission, executive compensation, hospitalization, insurance or
similar plan providing for employee benefits or any other arrangement providing
for benefit or any former or current employees or for the remuneration, direct
or indirect, of the directors, officers or employees of the Company.
14
(c) The Stockholder has made available to the Purchaser at the Company's
offices correct and complete copies of all of the Contracts and other documents
listed in Schedules 5.12(a) and 5.12(b) hereto and all amendments thereto and
any waivers granted thereunder (the "Scheduled Contracts"). Except as
specifically set forth on Schedules 5.12(a) and 5.12(b), the sale of the Stock
to the Purchaser and the consummation of the other transactions contemplated by
this Agreement are not a violation of or grounds for the modification or
cancellation of any of the Scheduled Contracts or for the imposition of any
penalty or security interests thereunder. Except as may be set out in Schedules
5.12(a) and 5.12(b), no unresolved disputes are pending or, to the Company's or
to the Stockholder's knowledge, threatened under or in respect of any such
Scheduled Contracts. The Company has no outstanding power of attorney other than
routine power of attorney relating to representation before governmental
agencies or given in connection with qualification to do business in another
jurisdiction.
Except as described in Schedule 5.12(a) and (b) hereto, all Scheduled
Contracts described in such Schedule 5.12(a) and (b) are valid and enforceable
in accordance with their respective terms, except as the enforcement thereof may
be subject to or limited by bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the enforcement of creditors' rights generally now or
hereafter in effect and subject to the application of equitable principles and
the availability of equitable remedies. Neither the Company nor Stockholder have
received written notice or, to the Company's and Stockholder's knowledge, any
other notice, that there is, under any of such documents or agreements or any
obligation, or covenant or condition contained therein, any existing default by
the Company, or to the Company's or Stockholder's knowledge, by any other party,
or any event which with notice, lapse of time, or both, would constitute a
default and which would have an adverse effect of $50,000 or more on the
Company.
5.13 Intellectual Property.
Schedule 5.13 hereto sets forth a true and complete list of all
Intellectual Property and copyrights and copyright applications and renewals
thereof owned by the Company (the "Intellectual Property"). All the Intellectual
Property is owned by the Company free and clear of any and all licenses, Liens,
claims, security interests, charges or other encumbrances or restrictions of any
kind, and no licenses for the use of any of such rights or trade secrets have
been granted by the Company to any third parties, except as set forth in
Schedule 5.13 hereto. All of the Intellectual Property and the trade secrets are
valid, enforceable and in good standing in all material respects, and are
sufficient and appropriate for the conduct of business of the Company as
currently conducted and as proposed to be conducted and, subsequent to the
Closing, the same will be available for use on the same terms and conditions as
prior to the Closing. The sale of the Stock to the Purchaser and the
consummation of the other transactions contemplated hereby will not adversely
affect any rights in the Intellectual Property of the Company. To the knowledge
15
of the Company and the Stockholder, the operation of the business of the Company
does not infringe in any way on any patent, trademark, trade name, copyright,
trade secret, contract, license or other similar right, of any person, and the
Company does not license any such right from others except as set forth on
Schedule 5.13. No claim is pending or, to the knowledge of the Company and the
Stockholder, threatened, with respect to such infringement or conflict. No other
intellectual property or trade secret other than those owned or licensed by the
Company is required for its business as presently conducted. The Stockholder has
no knowledge of any on-going infringement by any third parties upon any of the
Intellectual Property.
5.14 Insurance.
Schedule 5.14 hereto contains a complete and correct list of all insurance
policies maintained by the Company together with a schedule of required
premiums, premium payment dates and any prepaid premiums under each such policy.
The Stockholder has made available to the Purchaser complete and correct copies
of all such policies together with all riders and amendments thereto. Such
policies are in full force and effect, and all premiums due thereon have been
paid. The Company has complied in all material respects with the provisions of
such policies. No notice has been received canceling or threatening to cancel or
refusing to renew any of such insurance. The rights of the insured under such
policies will not be terminated or adversely affected by the Closing or the
consummation of the other transactions contemplated hereby. To the knowledge of
the Company and the Stockholder, there is currently no basis for any insurance
claim by the Company.
5.15 Customer and Supplier Relationships.
Attached as Schedule 5.15 is a complete and correct list of all current
customers of the Company showing the sales to each for the year ended October 1,
2004 and the three months ended December 31, 2004 and of all suppliers whose
sales to the Company amounted to more than $50,000 during any of such periods
showing the sales of each. Except as set forth in Schedule 5.15, with respect to
any such customer or supplier or group of related customers or suppliers listed
thereon, the Stockholder has no knowledge that any such customer, supplier or
group of related customers or suppliers has terminated, or is likely to
terminate any of its business with the Company, or materially change the terms
under which it is prepared to continue doing business. Except as disclosed in
Schedule 5.15 hereto, no Stockholder or director or officer of the Company or
any of their family members or Affiliates has any direct or indirect interest,
either by way of stock ownership or otherwise, in any firm, corporation,
association or business enterprise, which competes with, is a supplier or
customer of, or is a distributor or sales agent for, or is a party to any
Contract with the Company.
5.16 Environmental Compliance.
Except as may be set out in Schedule 5.16:
(a) The Company holds all permits required under all applicable
Environmental Law (each of which is in full force and effect) for any of its
current operations or for any property currently owned, leased or otherwise
operated by it, and is and has been in compliance with all such permits;
(b) There is not now, nor has there been, any disposal, release, or
threatened release of Hazardous Material by the Company on, under, in, from or
about any real property or any properties formerly owned or occupied by the
Company, or which otherwise were related to the operations of the Company that
has subjected or may subject the Company to Environmental Liabilities under any
applicable Environmental Law;
(c) The Company has not received any written or, to the Company's and
Stockholder's knowledge, oral notice, demand, letter, claim or request for
information that alleges violation of or any Environmental Liability under any
Environmental Law and there are no pending proceedings, actions, investigations,
orders, decrees, or injunctions relating to or otherwise alleging any
Environmental Liability under any Environmental Laws.
(d) In connection with any property currently or formerly owned, leased or
otherwise operated by the Company, the Company is in compliance with all
Environmental Law in all material respects;
(e) The Company has not engaged in or permitted any operations or
activities upon any properties currently or formerly owned or occupied by the
Company involving the use, storage, handling, release, treatment, manufacture,
processing, deposit, transportation or disposal of any Hazardous Material except
in accordance with all Applicable Laws;
(f) To the Company's and Stockholder's knowledge, any other properties
formerly owned or occupied by the Company are not now and have not during the
period of ownership or occupancy by the Company been contaminated with any
Hazardous Material used or generated by the Company, and no Hazardous Material
has migrated from or from properties formerly owned or occupied by the Company,
onto or beneath any other property;
(g) In relation to any property currently or formerly owned or occupied by
the Company during such period(s) of ownership or occupation or thereafter, the
Company has not received any written notice or, to the knowledge of the Company
and Stockholder, other notice that there have been any civil or criminal
actions, notices of violations, administrative proceedings of any Government
Authority under any Environmental Law against the Company, nor any of its
respective directors, employees, officers or agents and for which there was
imposed any Environmental Liability under applicable Environmental Law;
(h) The Company has not disposed of or arranged for the disposal of
Hazardous Materials on any third party property that has or could subject it to
Environmental Liability under any Environmental Law;
(i) To the Company's and Stockholder's knowledge, the Company has not
exposed any current or former employee or Person to any Hazardous Materials or
condition which has subjected or could subject the Company to any Environmental
Liability under any Environmental Law or otherwise;
17
(j) The Company has not assumed by agreement or otherwise any liability of
any Person for investigation or remediation of Hazardous Material, compliance
with Environmental Law, or any claim for personal injury, property damage or
damage to natural resources related to or arising under any Environmental Law;
(k) The Company has not been required by any Government Authority to make,
nor to the knowledge of Stockholder are there any circumstances which would
require the Company to make, any capital or other expenditures to comply with
any Environmental Law;
(l) To the Company's and Stockholder's knowledge, the Company has no
existing Environmental Liability resulting from, or caused by any act, omission
or condition existing prior to the Closing nor to the knowledge of Stockholder
are there any circumstances which could result in any such Environmental
Liability.
5.17 Absence of Certain Changes. Except as set forth in Schedule 5.17 or as
otherwise disclosed in this Agreement, since December 31, 2004, the Company's
business has been conducted in the ordinary course; and
(a) Except as to any changes reflected in the updated financial statements
through February, 2005, attached as part of Schedule 5.17, there has not been:
(i) any material change in any liabilities of the Company reflected in Financial
Statements or that should be reflected as a liability on the balance sheet or
(ii) any incurrence, assumption or guarantee of any Indebtedness for borrowed
money by the Company.
(b) There has not been any commitment made, or any contract entered into,
by the Company, or any waiver, amendment, termination or cancellation of any
Contract by the Company, or any relinquishment of any rights hereunder by the
Company, or of any other right or debt owed to the Company, other than in each
such case actions taken in the ordinary course of business consistent with past
practice;
(c) There has not been any change by the Company in its accounting
principles, methods or practices or in the manner it keeps its books and records
or any change by the Company of current practices with regard to sales,
receivables, payables or accrued expenses;
(d) There have not been: (i) any capital expenditures or commitments in an
individual amount of $50,000 or an aggregate amount in excess of $50,000 for
additions to property, plant, equipment or intangible capital assets or capital
expenditures, or (ii) any sale, assignment, transfer, lease or other disposition
of or agreement to sell, assign, transfer, lease or otherwise dispose of any
asset or property having a value of $50,000 or group of assets or properties
having a value of $50,000, in the aggregate, other than in the ordinary course
of business;
18
(e) There has not been any payment, discharge or satisfaction of any
liabilities of the Company, other than payments, discharges or satisfactions in
the ordinary course of business;
(f) There has not been the creation or imposition of any Lien (other than a
"Permitted Lien") upon any of the assets and properties of the Company;
(g) There has not been any cancellation, compromise, waiver, or release of
any right or claim or Indebtedness (or series of related rights and claims);
(h) There has not been any issuance, sale or other disposition of any
capital stock of the Company, or grant of any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or exercise) any
capital stock of the Company;
(i) There has not been any dividend or distribution (whether in cash or in
kind) or repurchase, redemption or retirement of any capital stock of the
Company except in connection with the Company's obligations under the Gates
Stock Purchase Agreement, or as permitted under this Agreement;
(j) The Company has received no written notice, and to the Company's and
Stockholder's knowledge, there has not been any oral threat or notification, by
one or more distributors, customers or suppliers who are, individually or in the
aggregate, material to the Company, of an intention to terminate or materially
alter their respective business relationships or contracts with the Company. No
termination or material alteration of any such relationships or Contracts
occurred since October 1, 2003;
(k) There has not been any material damage, destruction, or loss (whether
or not covered by insurance) to the property or assets of the Company;
(l) There has not been any loan to, or any other transaction with, any of
the directors, officers, and employees of the Company;
(m) Other than payments under the Gates Note, there has not been any
payment of any amount to any Person outside the ordinary course of business with
respect to any Liability (excluding any costs and expenses incurred or which may
be incurred in connection with this Agreement and the transactions contemplated
hereby);
(n) There have not been any changes in the memorandum or articles of
association or other constitutional documents of the Company and no resolution
of Stockholder of the Company has been passed;
(o) The Company has not entered into any employment, deferred compensation
or other similar agreement (or any amendment to any such existing agreement)
with, or increased compensation, bonus or other benefits payable or potentially
payable to any director, officer or employee of the Company or increased
19
benefits payable or potentially payable under any severance, continuation or
termination pay policies or employment agreements for the benefit of employees
generally;
(p) There has not been any collective labor dispute or any activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company nor have any lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to any such employees occurred;
(q) There has been no acquisition or disposal of any interest in real
property and no rights to transfer any interest in the real property has been
encumbered;
(r) No material change has been made in the practices of ordering supplies
and raw materials, shipping finished goods, invoicing customers and collecting
debts;
(s) Except for debt collection in the ordinary course of business and
consistent with prior practice, no legal proceedings of any nature by or against
the Company has been commenced;
(t) No legally binding Contract, conditional or otherwise, to do any of the
foregoing has been made.
5.18 Assets of the Company
(a) Schedule 5.18 lists all of the equipment owned and used by the Company
in the conduct of the operation of its business.
(b) Except as set forth in Schedule 5.18, the equipment material to the
operation of the Company's business (i) is structurally sound and in good
operating condition, ordinary wear and tear excepted, (ii) has been and is being
used in the Company's business in compliance in all material respects with
permits and licenses required for use or operation thereof, and Applicable Law
and Environmental Law, (iii) is capable of being used for the purposes for which
such equipment is now used by the Company and (iv) is sufficient to conduct its
business in the manner in which it is conducted currently and as it is proposed
to be conducted.
(c) Unless otherwise indicated in the Financial Statements, the equipment
described in Schedule 5.18 is valued on the books and records of the Company
based on the original costs thereof, less accumulated depreciation recorded and
calculated on the basis of the methodology and life specified on said schedule.
(d) The Company owns or has valid rights to use, free and clear of all
Liens except Permitted Liens, all of its assets. Such assets will be sufficient
for Purchaser to continue to operate the Company in the same manner as it is
conducted currently after the Closing Date.
20
(e) Except as identified in Schedule 5.12(b), with regard to the equipment
listed on Schedule 5.18, the Company is not a party to or is liable under a
lease or hire, hire purchase, credit sale or additional sale agreement.
5.19 Product Warranties; Defects; Liability. The Company has received no
written notice, and to Company's and Stockholder's knowledge no other notice,
that any product designed, manufactured, sold and delivered by the Company is
defective and, to the Company's and Stockholder's knowledge, all products
designed, manufactured, sold and delivered by the Company are not defective in
any material respects, and have been in conformity in all material respects with
Applicable Law, Environmental Law, all Contracts and all express and implied
warranties. No product designed, manufactured, sold or delivered by the Company
is subject to any guaranty, warranty, or other indemnity beyond (i) the
applicable standard terms and conditions of sale, (ii) Applicable Laws; and
(iii) any express provisions contained in the Contracts as identified in
Schedule 5.19. Schedule 5.19 also includes copies of the standard terms and
conditions of sale or lease of the products and services of the Company
(containing applicable guaranty, warranty, and indemnity provisions). The
Company has not received written notice of any liability (and to the knowledge
of the Company and Stockholder no basis for any present or future action or
proceeding giving rise to any Liability exists) as a result of the ownership,
possession, or use of any product designed, manufactured, sold and delivered by
the Company, and, to the Company's and Stockholder's knowledge, there has been
no inquiry or investigation made in respect thereof by any Person including any
Governmental Authority.
5.20 Employees.
Except as disclosed in Schedule 5.20:
(a) There are no existing contracts for any Person to provide consulting
services to the Company.
(b) The Company has no profit-sharing, share option or share incentive
schemes or other employee plans in relation to any employee and there are no
collective bargaining agreements or arrangements with trade unions relating to
the employees.
(c) The Company has paid all relevant social security contributions and the
Company has in all material respects complied with, discharged and fulfilled all
requirements, liabilities and obligations (whether statutory or contractual) in
relation to its employees including all relevant legislation and codes of
practice under any Applicable Law in relation to employment or employees or
employee representation.
(d) No Liability has been incurred by the Company since September 30, 2003
for compensation for wrongful or unfair dismissal or for failure to comply with
any order for the reinstatement or re-engagement of any employees.
21
(e) No gratuitous payment has been made or promised by the Company since
September 30, 2003, in connection with the actual or proposed termination or
suspension of employment or variation of any contract of employment of any
present or former director or employee as a result of the transactions
contemplated herein or otherwise.
(f) There is no Person previously employed by the Company who now has or
may in the future have a right to return to work (whether for reasons connected
with maternity leave or absence by reason of illness or incapacity or otherwise)
or a right to be reinstated or re-engaged.
(g) There is no pending or, to the knowledge of the Company and the
Stockholder, threatened, claim by any employee or former employee of the Company
on account of the Company's employment or termination of employment of that
Person prior to the Closing Date including, without limitation, workers'
compensation claims nor, to the knowledge of Stockholder, are there any
circumstances likely to give rise to any such claim, subject only to any claims
that Tell Gates would have if there is an Event of Default by the Company in its
obligations arising under the Gates Note or the Gates Stock Purchase Agreement.
(h) No key employee, or group of employees or any executive of the Company;
(i) has given notice of his or her intention to resign prior to the
Closing Date or within 12 months after the Closing Date nor to
the knowledge of Stockholder is any key employee, group of
employees or executive intending to do so;
(ii) would become entitled to any rights (including as to
compensation) as a result of the entry into, or the consummation
of the transactions contemplated by this Agreement.
(i) The Company is not a party to any agreement or engagement or practice
imposing a legal obligation on it to increase the rate of remuneration of, or to
make any bonus or incentive payments or any benefits in kind or any other
payments to or on behalf of, any of its former, present officers or employees,
either now or at any future date, other than payments due in connection with the
Gates Stock Purchase Transaction.
5.21 Affiliated Transactions.
Except as set forth in Schedule 5.21 (a) with regard to the Company, the
Company is not, nor has it been, a party to or bound by any Contract with any of
its Affiliates, other than on arms-length terms which are no less favorable to
the Company than those which could be obtained with a third party which is not
an Affiliate and (b) no Affiliate of the Company owns or otherwise has any
rights to or interests in any asset, tangible or intangible, which is used by
the Company.
22
5.22 No Illegal Payments.
Neither the Company nor any of its directors, officers, employees or
agents, has (i) directly or indirectly given or agreed to give any illegal gift,
contribution, payment or similar benefit to any supplier, customer, governmental
official or employee or other person to assist in connection with any actual or
proposed transaction or made or agreed to make any illegal contribution, or
reimbursed any illegal political gift or contribution made by any other person,
to any candidate for federal, state, local or foreign public office (A) which
violates any Applicable Law, including but not limited to, the Foreign Corrupt
Practices Act of 1977, as amended, or might subject the Purchaser to any Damages
or penalties in any civil, criminal or governmental litigation or proceeding or
(B) the non- continuation of which has had or might have a Material Adverse
Effect or (ii) established or maintained any unrecorded fund or asset or made
any false entries on any books or records for any purpose.
5.23 Information Technology.
(a) Schedule 5.23 sets forth the summary details of the material
information technology owned or used by the Company and all material agreements
or arrangements relating to the maintenance and support, security, disaster
recovery management and utilization (including facilities management and
computer bureau services agreements) of the information technology owned or used
by the Company have been disclosed.
(b) Maintenance contracts are in force for each asset which it is normal to
have maintained by independent or specialist contractors and for each asset
which the Company is obliged to maintain or repair under a leasing or similar
agreement. Those assets have been regularly maintained in accordance with safety
regulations required to be observed in relation to them and the provisions of
any applicable agreement.
(c) All information technology used by or required to carry on the business
of the Company and fulfill its existing contracts and commitments is either
owned by or validly leased or licensed to the Company.
(d) The Company has received no written notice or, to the Company's and
Stockholder's knowledge, any other notice of any material defects relating to
the information technology owned or used by the Company and, to the Company's
and Stockholder's knowledge, there are no material defects relating to the
information technology owned or used by the Company, and the information
technology owned or used by the Company has the capacity and performance
necessary to fulfill the requirements it currently performs.
(e) No source code or algorithms to any software owned (either solely or
jointly) by the Company has been disclosed to any Person, other than in the
ordinary course of business. For the avoidance of any doubt, the Company has
disclosed or released Source Code related to the IDM Software as follow: (i) for
Army version 2.9H released April 21, 1999 and (ii) Air Force version 5.15
released April 17, 2001, in each case solely to the applicable Governmental
Authority.
23
5.24 Employee Plans.
(a) Schedule 5.24 sets forth a true and complete list of each "employee
welfare benefit plan " (as defined in Section 3(1) of ERISA) maintained by the
Company or to which the Company contributes or is required to contribute,
including any multi-employer employee welfare benefit plan, on behalf of
officers and employees of the Company (such multi-employer and other employee
welfare benefit plans being hereinafter collectively referred to as the "Welfare
Benefit Plans"). With respect to each Welfare Benefit Plan, all contributions or
premiums due by the Closing Date have been paid or accrued.
(b) Schedule 5.24 sets forth a true and complete list of each "employee
pension benefit plan " (as defined in Section 3(2) of ERISA) maintained by the
Company or to which the Company contributes or is required to contribute,
including any multi-employer employee pension benefit plan, on behalf of
officers and employees of the Company (such multi-employer and other employee
pension benefit plans being hereinafter collectively referred to as the "Pension
Benefit Plans"). No Pension Benefit Plan is a "defined benefit plan" (as defined
in Section 3 (35) of ERISA). With respect to each Welfare Benefit Plan including
an "individual account Plan" (as defined in Section 3(34) of ERISA), all
contributions due by the Closing Date have been made or will be made or accrued
prior to the Closing Date.
(c) Each Pension Benefit Plan, each Welfare Benefit Plan and each related
trust agreement and annuity contract and insurance policy (and any other funding
instruments) complies and has complied, both as to form and operation, to the
extent applicable, with the provisions of (A) the Code in order to be tax
qualified under Section 401(a) or 403(a) of the Code (with respect to a Pension
Benefit Plan intended to be so qualified); (B) ERISA; and (C) such other Act as
may be applicable. Each Pension Benefit Plan has received a favorable
determination letter from the Internal Revenue Service and, to the Company's and
Stockholder's knowledge, no event has occurred or condition exists which would
adversely affect any such determination. If an amendment has been adopted to a
Pension Benefit Plan after issuance of such favorable determination letter from
the Internal Revenue Service, such amendment has been or may be timely submitted
to the Internal Revenue Service within the applicable remedial amendment period.
(d) The Company and, to the Company's and Stockholder's knowledge, each
third party plan administrator, have administered each Welfare Benefit Plan and
each Pension Benefit Plan to date in material compliance with the requirements
of the Code, ERISA and all other applicable laws. All reports required by any
Government Authority with respect to each Welfare Benefit Plan and each Pension
Benefit Plan have been timely filed, except to the extent failure to so file
would not result in an aggregate cost, fine or penalty in excess of $5,000.
24
(e) Neither the Company, any plan fiduciary affiliated with the Company
nor, to the Company's or Stockholder's knowledge, any third party plan fiduciary
of any Welfare Benefit Plan or Pension Benefit Plan has engaged in any
transaction in violation of Section 406 of ERISA or any "prohibited transaction"
(as described in Section 4975(c) of the Code), except to the extent that such
violation would not result in an aggregate cost, fine or penalty to the Company
or such fiduciary in excess of $5,000.
(f) Schedule 5.24 lists each deferred compensation plan, bonus plan, stock
option plan, employee stock purchase plan and any other employee benefit plan,
agreement, arrangement or commitment not required under a previous subsection to
be listed, which is maintained by the Company with respect to the compensation
of any of their employees.
(g) No liability has been incurred by the Company or other trade or
business under common control with the Company (as determined under Sections
414(b), 414(c), 414(m) or 414(o) of the Code) ("Common Control Entity") on
account of any termination of an employee pension benefit plan subject to Title
IV of ERISA. No filing has been commenced to terminate any employee pension
benefit plan subject to Title IV of ERISA maintained, or wholly or partially
funded, by the Company (or any Common Control Entity). Neither the Company nor
any Common Control Entity has (i) ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA, (ii) withdrawn as
a substantial employer so as to become subject to the provisions of Section 4063
of ERISA, (iii) ceased making contributions on or before the date of the Closing
to any employee pension benefit plan subject to Section 4064(a) of ERISA to
which the Company (or any Common Control Entity) made contributions during the
five years prior to the date of the Closing, or (iv) made a complete or partial
withdrawal (as each is defined in Sections 4203 and 4205, respectively, of
ERISA) or a reduction in contribution base units which, if sustained for three
years, would constitute a partial withdrawal under Section 4205 of ERISA from a
multiemployer plan (as defined in Section 3(37) of ERISA) so as to incur
withdrawal liability as defined in Section 4201 of ERISA (without regard to
subsequent reduction or waiver of such liability under section 4207 or 4208 of
ERISA). Neither the Company nor any Common Control Entity has engaged in a
transaction designed to avoid or evade liability until Title IV of ERISA within
the five years preceding the Closing Date.
(h) The Company has received no written notice or, to the Company's or
Stockholder's knowledge, any other notice, of any actions, suits or claims
(other than routine claims for benefits) pending and, to the Company's and
Stockholder's knowledge, none could reasonably be expected to be asserted
against any Pension Benefit Plan or Welfare Benefit Plan. The Company has
received no written notice that any civil or criminal actions are pending or, to
the knowledge of the Stockholder, threatened against any Pension Benefit Plan or
Welfare Benefit Plan, or any fiduciary thereof with respect to such Plan. The
Company has received no written notice that any Pension Benefit Plan or Welfare
Benefit Plan is the direct or indirect subject of any audit, investigation or
examination by any Governmental Authority and, to the Company's and
Stockholder's knowledge, no Pension Benefit Plan or Welfare Benefit Plan is the
direct or indirect subject of any audit, investigation or examination by any
Governmental Authority, and no such completed audit, investigation or
examination, if any, has resulted in the imposition of any fine or penalty
against any Person.
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(i) All Welfare Benefit Plans, Pension Benefit Plans, related trust
agreements or annuity contracts (or any other funding instruments), and all
plans, agreements, arrangements and commitments referred to in subsection (i) of
this Section are legally valid and binding and in full force and effect.
(J) No Pension Benefit Plan containing a section 401(k) cash or deferred
arrangement in which employees of the Company participated has been terminated.
5.25 Books and Records. The books and all corporate (including minute books
and stock records books) and financial records of the Company are complete and
correct in all material respects and have been maintained in accordance with
applicable sound business practices, laws and other requirements and no notice
has been received or allegation made that a register or book is incorrect or
should be rectified.
5.26 Litigation; Compliance; Permits.
Except as disclosed in Schedule 5.26 hereto, there are no actions, suits,
proceedings, arbitrations or governmental investigations pending, or, to the
Company's or Stockholder's knowledge, threatened against, by or affecting the
Company in which, individually or in the aggregate, an unfavorable determination
could adversely affect by $50,000 or more the Company, or result in any
liability of $50,000 or more on the part of the Company, or prevent, hinder or
delay the execution and performance of this Agreement or any of the transactions
contemplated hereby, or could declare this Agreement unlawful or cause the
rescission of any of the transactions hereunder, or require the Purchaser to
divest itself of the stock; nor has any such suit been pending within the two
years prior to the date hereof. The Company has not received written notice of
and, to the Company's and Stockholder's knowledge, has not been otherwise
notified of, any violation of any applicable federal, state, local or foreign
law, rule, regulation, ordinance, order or decree relating to it, or the
operation of its business, and the Stockholder is not aware of any threatened
claim of such violation (including any investigation) or any basis therefore.
The Company has complied and is in compliance with, all laws, rules,
regulations, ordinances, orders, judgments, decrees, writs, injunctions,
building codes, safety, fire and health approvals, certificates of occupancy or
other governmental restrictions applicable to it, its assets, employees and
employment practices, except where the failure to so comply would not have an
adverse effect of $50,000 or more on the Company, its business, assets,
financial condition, employees and employment practices.
The Company has all material governmental licenses, permits, approvals or
other authorizations required for the conduct of its business as now conducted,
all of which are in full force and effect; the Company has not received written
notice of any action pending or, to the knowledge of the Stockholder,
26
threatened, to terminate any rights under any such governmental licenses,
permits or authorizations; and except as disclosed on Schedule 5.26 at the
Closing, none of such licenses, permits, approvals and authorizations will be
materially adversely affected by the sale of the Stock to the Purchaser or the
consummation of the other transactions contemplated by this Agreement.
5.27 Bank Accounts; Power of Attorney.
Schedule 5.27 hereto correctly sets forth: (i) a list of all banks in which
the Company has an account or safety deposit box, account number, purpose of
such account or safety deposit box and, the names of all persons authorized to
draw thereon or have access thereto; and (ii) the names of all persons holding
powers of attorney from the Company and a description of the power of attorney.
5.28 Disclosure.
The representations and warranties contained in this Section 5 (including
the schedules and exhibits required to be delivered by Stockholder or the
Company to Purchaser pursuant to this Agreement) and any certificate furnished
or to be furnished by Stockholder or the Company to Purchaser do not contain and
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 5 not misleading. To the knowledge of the Company and
Stockholder, there is no material fact or complex of facts or circumstances
relating to the Company which may result in a Material Adverse Effect which has
not been disclosed in this Agreement to Purchaser.
6. Representations and Warranties of Purchaser.
The Purchaser represents and warrants to the Stockholder and the Company on
the date hereof and on the Closing Date as follows:
6.1 Corporate Status.
The Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with full corporate power and
authority to carry on its business as now conducted.
6.2 Authority for Agreements.
The Purchaser has the power and authority to execute and deliver this
Agreement and the Escrow Agreement and to carry out its obligations hereunder
and thereunder. The execution, delivery and performance by the Purchaser of this
Agreement and the Escrow Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Purchaser. This Agreement and the Escrow
27
Agreement have been duly executed and delivered by the Purchaser and constitute
the legal, valid and binding obligations of the Purchaser enforceable against
the Purchaser in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization and similar laws
of general application relating to or affecting the rights and remedies of
creditors.
6.3 No Conflicts.
The execution, delivery and performance of this Agreement and the Escrow
Agreement, and the consummation of the other transactions contemplated hereby
and thereby, do not and will not (i) require the consent, waiver, approval,
license, designation or authorization of, or declaration with, any court or any
government authority or agency; or (ii) with or without the giving of notice or
the passage of time or both, violate, conflict with or result in a breach or
termination of, constitute a default under, accelerate or permit the
acceleration of the performance required by the terms of, result in the creation
of any mortgage, security interest, claim, lien, charge or other encumbrance
upon any of the assets of the Purchaser pursuant to, or otherwise give rise to
any liability or obligation under, the certificate of incorporation or bylaws of
the Purchaser or any agreement, mortgage, deed of trust, indenture, license,
permit or any other agreement or instrument, or any order, judgment, decree,
statute or regulation, to which the Purchaser is a party or by which the
Purchaser or any of its assets may be bound, excluding liens created by
Purchaser in connection with obtaining debt financing to complete the
transaction contemplated by this Agreement.
6.4 Disclosure.
The representations contained in this Section 6 and any certificate to be
delivered by the Purchaser to the Company or Stockholder pursuant to this
Agreement do not contain and will not contain any untrue statement of material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section 6 not misleading.
6.5 FOCI. Purchaser and its Affiliates are not subject to foreign
ownership, control or influence as defined by Applicable Law relating to
Contracts with United States Governmental Authorities.
7. Covenants.
7.1 Conduct of the Business. During the period from the date hereof to the
Closing Date, the Company shall and the Stockholder shall cause the Company to
conduct its business in the ordinary course of business consistent with past
practice so as to maintain the same as a going concern in compliance with all
Applicable Laws and will not, without the prior written consent of Purchaser,
permit the Company to:
(a) amend any of its constitutional documents in any respect;
28
(b) subject to existing obligations with respect to the Gates Stock
Purchase Transaction, authorize for issuance, issue, sell, deliver, redeem or
repurchase or agree or commit to issue, sell, deliver, redeem or repurchase
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any share capital of any class
or any other securities or equity equivalents (including, without limitation,
any stock options or stock appreciation rights);
(c) split, combine or reclassify any of its share capital, declare, set
aside or pay any dividend or other distribution (whether in cash, share capital
or property or any combination thereof) in respect of its share capital, make
any other actual, constructive or deemed distribution in respect of its share
capital or otherwise make any payments to stockholders in their capacity as
such, or redeem or otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company (other than the sale of the Stock);
(e) (i) incur, assume or modify any long-term or short-term debt or issue
any debt securities except for borrowings under existing lines of credit in the
ordinary course of business; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice; (iii) make any loans, advances or capital
contributions to or investments in any other person; or (iv) mortgage or pledge
any of its material assets, tangible or intangible, or create or suffer to exist
any Lien thereupon (other than Permitted Liens and Tax Liens for Taxes not yet
due);
(f) except as may be required by law, enter into, adopt, amend or terminate
any bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer or
employee in any manner or increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any plan and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance units) or
exercise any discretion in relation to any such arrangement or communicate to
any participant in the same an intention to do the same or pay any benefits
other than in accordance with the terms thereof;
(g) acquire, sell, lease or dispose of any assets in any single transaction
or series of related transactions having a fair market value in excess of
$50,000 in the aggregate (other than in connection with outsourcing agreements
entered into with customers of the Company);
(h) except as may be required as a result of a change in law, change any
accounting reference date of the Company or change any of the accounting
principles or practices used by it or its practices in managing debtors and
creditors;
29
(i) cause any right or entitlement, insurance or Contract to lapse or be
varied except in the ordinary course of business;
(j) except for the hiring of personnel as set out in Schedule 7.1, or as
otherwise provided herein, enter into any new Contract obligating the Company to
make payments thereunder in excess of $50,000 in any twelve-month period; or
(k) make any substantial change in the continuation, nature or organization
of the Company or take or agree in writing or otherwise to take any of the
actions which would make any of the representations or warranties of the Company
or Stockholder contained in this Agreement untrue or incorrect in any material
respect.
7.2 Access to Information.
(a) Between the date hereof and the Closing Date, Stockholder will provide,
or cause the Company to provide, Purchaser and its authorized representatives
with reasonable access during normal business hours to the facilities of the
Company, its books and records, the personnel and representatives of the Company
and the customers and suppliers of the Company, provided that (i) all contact
with and access to the Company shall be conducted in a manner consistent with
the terms of the Confidentiality Agreement between the parties dated January 28,
2005 ("Confidentiality Agreement"), a copy of which is attached hereto as
Exhibit D and is incorporated herein by this reference, (ii) Purchaser agrees
that such access will give due regard to minimizing interference with the
operations, activities and employees of the Company and (iii) such access and
disclosure would not violate the terms of any agreement by which Stockholder or
the Company is bound or any Applicable Law. For avoidance of doubt, Purchaser
will not be provided with access to source codes or similar trade secrets until
after Closing. (b) Between the date hereof and the Closing Date, at the request
of Purchaser, Stockholder and the Company shall furnish to Purchaser and its
authorized representatives financial and operating data with respect to the
Company prepared in a manner consistent with the Financial Statements, including
tax returns.
7.3 Non-competition Agreements.
Non-competition agreements between Purchaser's designee, ICI Acquisition
Corp. and the Stockholder, substantially in the form attached hereto as Exhibit
B, shall be executed and delivered to Purchaser at Closing.
7.4 Expenses.
The Purchaser and the Stockholder shall bear their own respective expenses
incurred in connection with this Agreement and the transaction contemplated
hereby and in connection with all obligations required to be performed by each
of them under this Agreement; provided, however, that the Company may pay up to
One Hundred Fifteen Thousand ($115,000) Dollars for the Company's and
Stockholder's professional fees (attorney's fees and accounting fees) incurred
in connection with this transaction without any adjustment in the Purchase
Price.
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7.5 Resignations of Directors and Officers.
The Stockholder shall provide to the Purchaser written resignations
effective as of the Closing Date of all of the directors and officers, bank
signatories and trustees of any pension, profit-sharing or similar plan of the
Company. In the event that the Purchaser requests any bank signatory
resignations, the Stockholder and the Company shall cause to be delivered to
Purchaser written instructions to each bank at which the Company has an account
or credit facility or at which the Company rents a safe deposit box informing
such bank of the said resignations and revoking the authority of said persons to
act with respect to said account or credit facility and to have access to said
safe deposit box. The Stockholder and the Company shall also cause to be
delivered to the Purchaser effective the Closing Date the written surrender by
all persons holding powers of attorney from the Company of their authority and
power to act under such powers of attorney.
7.6 Minute Books, Stock Books and Corporate Records.
The complete and correct minute books, certificate of incorporation,
by-laws, stock certificate and transfer books, stock ledgers, financial and
other corporate records and the corporate seal of the Company shall be delivered
to the Purchaser by the Company on or before the Closing Date.
7.7 Taxes.
(a) Section 338(h)(10) Election. The Company and Stockholder shall join
with the Purchaser in making an election under Code Section 338(h)(10) (and any
corresponding election under state, local, and foreign tax law) with respect to
the purchase and sale of Company stock hereunder (collectively, a "Section
338(h)(10) Election"). Stockholder shall include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
their Tax Returns to the extent required by applicable law, and Stockholder
shall also pay any Tax imposed on the Company attributable to the making of the
Section 338(h)(10) Election, including any Tax imposed resulting from Sec. 1374
(collectively and individually the "338 Election Taxes"), provided that the
aggregate of all 338 Election Taxes, whether payable by the Stockholder or by
the Company, shall not exceed Fifty Thousand Dollars ($50,000.00). Purchaser
shall be liable to the Stockholder for any and all 338 Election Taxes in excess
of Fifty Thousand Dollars ($50,000.00) (the "Excess 338 Election Taxes"), and
shall pay to the Stockholder any amount equal to the Excess 338 Election Taxes
within ten (10) days after the Stockholder notifies the Purchaser of same and
provides a copy of the applicable portion(s) of any relevant Tax Returns. The
Stockholder shall indemnify Purchaser and the Company against any adverse
consequences arising out of any failure to pay any 338 Election Taxes up to and
equal to Fifty Thousand Dollars ($50,000.00), or any failure of the Company or
31
the Stockholder in properly electing its S corporation status in 1999 and
maintaining its S corporation status through and including the date of Closing.
The Purchaser shall indemnify and hold harmless the Stockholder with respect to
any Excess 338 Election Taxes.
(b) Purchase Price Allocation. Purchaser, the Company, and the Stockholder
agree that the Purchase Price and the liabilities of the Company (plus other
relevant items) will be allocated to the assets of the Company for all purposes
(including Tax and financial accounting) in a manner consistent with Code
Section 338 and Section 1060 and the regulations thereunder. Purchaser, the
Company, and the Stockholder shall file all Tax Returns in a manner consistent
with such allocation and values. Purchaser shall propose an allocation for the
Acquisition and Stockholder shall have ten (10) days to note any objection to
the proposed allocation. Any dispute shall be settled by an independent
appraiser or accounting firm to be mutually appointed by the Purchaser and the
Stockholder.
(c) Tax Periods Ending on or before Closing Date: The Stockholder shall
prepare or cause to be prepared, and file or cause to be filed, all Tax Returns
for the Company for all periods ending on or prior to the Effective Date that
are due and filed after the Effective Date (the "Pre- Closing Tax Returns").
Purchaser shall prepare or cause to be prepared, and file or cause to be filed,
all Tax Returns for the Company for all periods ending after the Effective Date
that are due and filed after the Effective Date (the "Post-Closing Tax
Returns"). For avoidance of doubt, the Post-Closing Tax Returns also include any
Tax Returns which include both (i) any period prior to or including the
Effective Date, and (ii) any period after the Effective Date.
(d) Cooperation on Tax Matters.
(i) Purchaser, the Company, and the Stockholder shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information reasonably
relevant to any such audit, litigation, or other proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Purchaser and the Company agree
(A) to retain all books and records with respect to Tax matters pertinent to the
Company relating to any taxable period beginning before the Closing Date until
expiration of the statute of limitations (and, to the extent notified by
Purchaser or the Stockholder, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other parties (including also the
Stockholder) reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests, the
Company or Purchaser, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) Purchaser and the Company further agree, upon request, to use
commercially 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 (including with respect to the
transactions contemplated hereby), although no party shall be required to
commence litigation to obtain same.
32
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by the
Stockholder when due. The Stockholder shall file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
law, the Company and the Purchaser shall, and shall cause their Affiliates to,
join in the execution of any such Tax Returns and other documentation. The
Purchaser and the Company each agree to cooperate with the Stockholder to
minimize any such Taxes.
(f) Tax Indemnification. Stockholder shall indemnify the Company,
Purchaser, and each Purchaser Affiliate and hold them harmless from and against
[without duplication], any loss, claim, liability, expense, or other damage
attributable to all Taxes (or the non-payment thereof) of the Company due under,
or in connection with, the Pre-Closing Tax Returns. Purchaser shall indemnify
the Company, the Stockholder, and each Company Affiliate and hold them harmless
from and against [without duplication], any loss, claim, liability, expense, or
other damage attributable to all Taxes (or the non-payment thereof) of the
Company due under, or in connection with, the Post- Closing Tax Returns.
7.8 Assignment of Lease.
Pursuant to Section 25.9 of the Deed of Lease dated July 19, 2002, as
amended (the "Lease"), for the Company's facilities at 0000 Xxxxxxxxxx Xxxxx,
XxXxxx, Xxxxxxxx, no consent of the landlord is required for continuation of the
Lease after the Acquisition. To the extent Purchaser subsequently elects to
merge the Company with any other entity, or to assign the Lease to another
entity, it will do so subject to and in accordance with the provisions of the
Lease.
7.9 Approvals and Consents
(a) The parties shall use their respective best efforts to obtain all
consents, waivers, approvals, authorizations or orders, including, without
limitation, (a) all regulatory rulings and approvals of any Governmental
Authority and (b) all actions, consents, approvals, novations or waivers from
any party to any Contract that is required or reasonably appropriate, in
connection with the consummation of the transactions contemplated by this
Agreement. Subject to the terms and conditions of this Agreement, in taking such
actions or making any such filings, the parties hereto shall furnish information
required in connection therewith and seek timely to obtain any such actions,
consents, approvals or waivers. Purchaser recognizes and acknowledges that
required novations, if any, will not be obtained prior to Closing and agrees
that the failure to have these novations by the Closing Date will not delay
Closing.
33
(b) Stockholder, the Company and Purchaser will, as promptly as
practicable, take all steps necessary or desirable to obtain all consents,
waivers, approvals, authorizations or orders, or make all registrations,
declarations or filings with and give all notices to all applicable Government
Authorities or any other Person required of Purchaser to consummate the
transactions contemplated hereby, with the agreement that any required novations
will be sought after Closing.
7.10 Additional Agreements; Commercially Reasonable Efforts. Subject to the
terms and conditions herein provided, each of the parties hereto agrees to use
its commercially reasonable efforts to take or cause to be taken all action and
to do or cause to be done all things reasonably necessary, proper or advisable
under Applicable Law to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, (a) contesting
any legal proceeding challenging the transactions contemplated hereby, and (b)
executing any additional instruments necessary to consummate the transactions
contemplated hereby and thereby. If at any time after the Closing Date any
further action is necessary to carry out the purposes of this Agreement, the
proper officers and directors of each party hereto shall take all such necessary
action.
7.11 Public Announcements. On and after the date hereof and through the
Closing Date, Stockholder, the Company and Purchaser shall consult with each
other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby, and none of the parties shall issue any press release or make any public
statement prior to obtaining the other parties' written approval, which approval
shall not be unreasonably withheld, except that no such approval shall be
necessary to the extent disclosure may be required in the opinion of their
counsel by Applicable Law or applicable stock exchange rule or any listing
agreement of any party hereto.
7.12 Notice of Developments. Each party will give prompt written notice to
the other party of any development causing a breach of any of its own
representations and warranties in Sections 5 and 6 above, and each party shall
have ten (10) days from the date of such notice to cure any such breach,
provided that, (i) if the breach cannot be cured within the ten (10) day period,
and (ii) the breaching party commences to cure within the initial 10 days and
thereafter diligently prosecutes the cure to completion, then the time to cure
any such breach shall be extended to such time as reasonably may be necessary to
cure the breach, not to exceed thirty (30) days from the original date of the
notice. No disclosure by any party pursuant to this Section 7.12, by itself,
however, shall be deemed to amend or supplement the schedules or to prevent or
cure any misrepresentations, breach of warranty, or breach of covenant.
7.13 Exclusivity. The extent to which Purchaser and the Stockholder have
agreed to commit the resources necessary to proceed with negotiation toward the
execution of definitive purchase agreements to consummate the transactions
contemplated herein, is reflected in the Standstill Agreement, the terms of
which are incorporated by reference herein and shall be fully operative as if
set forth at length hereat until the Closing Date unless this Agreement is
sooner terminated pursuant to Sections 9.1(a) or (c).
34
7.14 [Intentionally Omitted]
7.15 Payment of Gates Note and other Contracts. At Closing, the Purchaser
shall pay in full the then outstanding balance due under the Gates Note. As of
the Closing Date, Purchaser shall ensure that the Company continues to fully and
timely perform all financial and other obligations under the Contracts.
Purchaser agrees to indemnify and hold the Stockholder harmless from and against
any and all claims, damages or Losses of any kind pertaining to or arising from
any breach of this covenant or any failure by the Company to fully and timely
perform its obligations under the Contracts or under the Gates Note.
8. Conditions Precedent.
8.1 Conditions to Obligations of the Purchaser.
The obligation of the Purchaser to pay the Purchase Price to the
Stockholder and to satisfy its other obligations hereunder shall be subject to
the fulfillment (or waiver by the Purchaser) at or prior to the Closing, of the
following additional conditions:
(a) Representations, Performance. The representations and warranties
contained in Section 4 hereof shall be true in all material respects at and as
of the date hereof and shall be repeated and shall be true in all material
respects at and as of the Closing Date with the same effect as though made at
and as of the Closing Date, except as affected by the transactions contemplated
hereby. The Stockholder and the Company shall have each duly performed and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by each prior to or on the Closing
Date. The Stockholder and the Company shall have delivered to the Purchaser a
certificate dated the Closing Date to the effect set forth in this Section
8.1(a).
(b) Consents Under Scheduled Contracts. All required consents to the sale
of the Stock or any of the other transactions contemplated hereby under any
Scheduled Contracts shall have been obtained, except with respect to those that
cannot be obtained prior to Closing (for example, novations, to the extent any
are required).
(c) Litigation. No suit, action or other proceeding or investigation shall
be threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain material damage or other material
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or which is likely to affect materially the value of the
assets, business or condition (financial or otherwise) of the Company.
(d) Opinions of Counsel. The Purchaser shall have received a favorable
opinion, addressed to the Purchaser and dated the Closing Date, of Seyfarth Xxxx
LLP for the Company and the Stockholder, in the form attached hereto as Exhibit
E.
(e) Proceedings and Documentation. All corporate and other proceedings of
the Company and its Stockholder in connection with the transactions contemplated
by this Agreement, and all documents and instruments incident to such corporate
proceedings, shall be satisfactory in substance and form to the Purchaser and
35
the Purchaser's counsel in their reasonable judgment, and the Purchaser and the
Purchaser's counsel shall have received all such receipts, documents and
instruments, or copies thereof, certified if requested, to which the Company is
entitled and as may be reasonably requested.
(g) Damage to Property. No portion of the plants, machinery or equipment of
or occupied by the Company material to the operation of the business of the
Company shall, after the date hereof and before the Closing Date, be materially
damaged, destroyed or taken by condemnation or eminent domain.
(h) Consents and Approvals. All material licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental or
regulatory bodies which are necessary for the consummation of the transactions
contemplated hereby shall have been obtained.
(i) Escrow Agreement. [INTENTIONALLY OMITTED]
(j) Standstill Agreement. [INTENTIONALLY OMITTED]
(k) Non-Competition Agreements. There shall have been delivered to the
Purchaser the Non-Competition Agreement of the Stockholder with ICI Acquisition
Corp.
(l) Good Standing Certificates. The Stockholder shall have delivered to the
Purchaser certificates as of a date not more than 15 days prior to the Closing
Date attesting to the good standing of the Company as a corporation in its
jurisdiction of incorporation by the Secretary of State of the applicable
jurisdiction.
(m) Real Estate Lease. [INTENTIONALLY OMITTED]
8.2 Conditions to Obligations of the Stockholder and the Company.
The obligation of the Stockholder and the Company to deliver the Stock and
to satisfy their respective obligations hereunder shall be subject to the
fulfillment (or waiver by the Stockholder), on or prior to the Closing Date, of
the following conditions:
(a) Representations, Performance, Etc. The representations and warranties
of the Purchaser contained in Section 6 hereof shall be true in all material
respects at and as of the date hereof and shall be repeated and shall be true in
all material respects at and as of the Closing Date with the same effect as
though made at and as of such time. The Purchaser shall have duly performed and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or on the Closing
Date. The Purchaser shall have delivered to the Stockholder an officer's
certificate dated the Closing Date to the effect set forth above in this Section
8.2(a).
36
(b) Opinion of Counsel. The Stockholder shall have received a favorable
opinion, addressed to the Stockholder and dated the Closing Date, of Xxxxxxx,
Xxxxxxxxx & Xxxxxxxx, LLP, counsel for the Purchaser, in the form attached
hereto as Exhibit F.
(c) Proceedings and Documentation. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement, and all
documents and instruments incident thereto, shall be satisfactory in substance
and form to the Stockholder and Stockholder's counsel, and the Stockholder and
Stockholder's counsel shall have received all such receipts, documents and
instruments, or copies thereof, certified if requested, to which the Stockholder
is entitled and as may be reasonably requested.
(d) Escrow Agreement. [INTENTIONALLY OMITTED]
(e) Delivery of Purchase Price. The Purchase Price has been delivered in
full.
9. Termination; Amendment; Waiver.
9.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date:
(a) by mutual consent of the parties.
(b) by the Purchaser by notice to the Company and to the Stockholder, (i)
if any of the conditions set forth in Section 8.1 hereof shall not have been
fulfilled by Stockholder and the Company at the time(s) specified for same, or
(ii) if any material default under or breach of any covenant, agreement or
condition of this Agreement, or any misrepresentation or breach of any warranty
contained herein, on the part of the Company or Stockholder shall have occurred
and, after proper notice, shall not have been cured.
(c) by the Stockholder by notice to the Purchaser, (i) if any of the
conditions set forth in Section 8.2 hereof shall not have been fulfilled by
Purchaser at the time(s) specified for same, or (ii) if any material default
under or breach of any agreement or condition of this Agreement, or any
misrepresentation or breach of any warranty contained herein, on the part of the
Purchaser shall have occurred and, after proper notice, shall not have been
cured.
(d) Except as set forth in paragraph (e) and in the Escrow Agreement, in
the event of the failure to close the transaction contemplated hereby or
termination of this Agreement pursuant to the provisions of Section 9 hereof,
this Agreement shall become void and have no effect, without any liability on
the part of any party hereto or its directors, officers or stockholders in
respect of this Agreement, except that the Confidentiality Agreement shall
survive any termination of this Agreement.
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(e) If the Company and the Stockholder fail to consummate the transaction
contemplated by 5:00 p.m. EST on April 15, 2005, notwithstanding that the
Purchaser has fulfilled or is prepared to fulfill all of its obligations on the
Closing Date, all of the conditions set forth in Section 8.2 and is not in
default under or in breach of any agreement, condition, representation or
warranty contained in this Agreement, the Purchaser shall be entitled to seek
and obtain injunctive and other equitable relief to enforce the consummation and
Closing of this Agreement in accordance with the terms hereof.
(g) Upon a termination of this Agreement, the Deposit will be returned to
Purchaser or to the Stockholder as provided in the Escrow Agreement, as modified
pursuant to this Agreement.
9.2 Amendment.
This Agreement may not be amended except by an instrument in writing duly
executed and delivered on behalf of each of the parties hereto.
10. Survival.
10.1 Survival.
The representations, warranties, agreements and indemnities contained in
this Agreement shall survive the execution and delivery of this Agreement, any
examination by or on behalf of such parties, and the completion of the
transactions contemplated herein, provided that (i) all such representations,
warranties, agreements and indemnities of the Company and Stockholder shall
terminate two (2) years after the Closing Date, except for the representations
and warranties in Sections 5.13, 5.16, 5.19 and 5.22, which shall terminate on
the earlier of the expiration of the applicable statute of limitations or five
(5) years after the Closing Date; and (ii) all such representations, warranties,
agreements and indemnities of the Purchaser shall terminate two (2) years after
the Closing Date.
11. Miscellaneous.
11.1 Consent to Jurisdiction and Waivers For Injunctive Relief.
The Purchaser, the Company and the Stockholder each irrevocably consents
that any legal action or proceeding for equitable relief which may be brought
against any of them pursuant to the terms of this Agreement which arise out of
or in any manner related to this Agreement may be brought either (a) in any
state or federal court located in the State of New York located in New York
County, or (b) in the Circuit Court for Fairfax County, Virginia or in the
United States District Court for the Eastern District of Virginia. The Purchaser
and the Stockholder by the execution and delivery of this Agreement, expressly
and irrevocably consent and submit to the personal jurisdiction of any of such
38
1
courts in any such action or proceeding. The Purchaser and the Stockholder
further irrevocably consent to the service of any complaint, summons notice or
other process relating to any such action or proceeding by delivery thereof to
it by hand or by any other manner provided for in Section 11.3. The Purchaser
and the Stockholder hereby expressly and irrevocably waive any claim or defense
in any such action or proceeding based on any alleged lack of personal
jurisdiction, improper venue or forum non conveniens or any similar basis.
Nothing in this Section shall affect or impair in any manner or to any extent
the right of the Purchaser to commence legal proceedings for equitable relief or
otherwise proceed for equitable relief.
11.2 Severability.
If any provision of this Agreement shall be held or deemed to be or shall,
in fact, be inoperative or unenforceable as applied in any particular case
because it conflicts with any other provision or provisions hereof or any
constitution or statute or rule of public policy, or for any other reason, such
circumstances shall not have the effect of rendering the provision in question
inoperative or unenforceable in any other case or circumstance, or of rendering
any other provision or provisions herein contained invalid, inoperative, or
unenforceable to any extent whatever. The invalidity of any one or more phrases,
sentences, clauses, sections, or subsections of this Agreement shall not affect
the remaining portions of this Agreement.
11.3 Notices.
All notices, consents, requests, instructions, approvals and other
communications provided for herein and all legal process in regard hereto shall
be validly given, made or served, if in writing and delivered personally or sent
by registered or certified mail (return receipt requested), postage prepaid,
recognized national or international air courier or by facsimile transmission
electronically confirmed:
if to Purchaser:
c/o ICI Acquisition Corp.
000 Xxxxx Xxxxx Xxxxxxxxx
Xxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Fax: 000-000-0000
Attn: Xx. Xxxxx Xxxx, Chief Executive Officer
with a copy to:
Xxxxx X. Xxxxxxxxx, Esq.
Xxxxxxx, Xxxxxxxxx & Xxxxxxxx, LLP
000 Xxxxxxx Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
39
if to the Company or Stockholder:
Xx. Xxxx Xxxxxxxxx
Innovative Concepts, Inc.
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000
XxXxxx, Xxxxxxxx 00000
with a copy to:
Xxxxxx Xxxxxxxx, Esq.
Seyfarth Xxxx LLP
000 Xxxxxxxxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000-0000
(if to the Company prior to the Closing Date, to the Stockholder, as
aforesaid, and after the Closing Date, to the Purchaser, as aforesaid)
or, in each case, at such other address as may be specified in writing to the
other parties.
11.4 Waiver.
Any party may waive compliance by another with any of the provisions of
this agreement. No waiver of any provisions shall be construed as a waiver of
any other provision or a future waiver of any other provision hereof. Any waiver
must be in writing.
11.5 Brokers, Finders, etc.
The Company, Stockholder and Purchaser represent and warrant to each other
that they have not dealt with or employed any broker, finder, investment banker
or financial advisor in connection with the negotiation, execution or
performance of this Agreement, other than the Stockholder and Purchaser each
engaging Xxxxx Xxxxx under separate agreements. Purchaser and the Stockholder
shall each pay and perform their respective obligations for such services to Xx.
Xxxxx and shall indemnify and hold harmless the other parties hereto with
respect to any and all claims or Losses (as defined in Section 12.2) incurred as
a result of a breach of this provision.
11.6 Assignment.
The Purchaser may not assign any of its rights or obligations hereunder
without the prior written consent of the Stockholder, except that such consent
shall not be required for an assignment to a direct or indirect wholly-owned
subsidiary of the Purchaser, which subsidiary, at and contemporaneously with the
Closing, may be merged with the Company, provided that in the event of any such
assignment and/or merger with or without the consent of the Stockholder, as the
40
case may be, the Purchaser and any such subsidiary or merged subsidiary, jointly
and severally, shall remain subject to the Purchaser's obligations hereunder,
including, without limitation, the full and timely performance of all
obligations of the Company under the Contracts and the Gates Note after the
Closing Date. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective permitted successors and assigns.
11.7 Miscellaneous.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
This Agreement constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware, applicable to contracts made and to be performed in Delaware.
This Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the parties hereto. The rights and obligations contained in this
Agreement are solely for the benefit of the parties hereto and are not intended
to benefit or be enforceable by any other party, under the third party
beneficiary doctrine or otherwise.
11.8. Counterparts. This instrument may be executed in any number of
counterparts, each of which when executed and delivered is an original, but all
of which together shall constitute one instrument with the same effect as if all
parties hereto had signed the same counterpart and signature page. In making
proof of this instrument, it shall not be necessary to produce or account for
more than one such counterpart which is executed by the party against whom
enforcement of such instrument is sought. In addition, any signature page and
related notary acknowledgments may be detached from any counterpart of this
instrument without impairing the legal effect of any signatures thereon, and
such signature page and related notary acknowledgments may be attached to
another counterpart of this instrument having attached to it one or more
additional signature pages and related notary acknowledgments.
12. Limitations on Stockholder's Liability.
12.1 Minimum Threshold and Maximum Liabilities. Notwithstanding anything to
the contrary in this Agreement, in no event shall the Stockholder be liable to
Purchaser, its successors or assigns, or be required to indemnify Purchaser, its
successors or assigns, for any Loss pertaining to or arising from this
Agreement, or from the breach of any representation or warranty of the Company
or of the Stockholder hereunder: (a) unless the amount of such Loss, when
aggregated with all other such Losses of such Persons, shall exceed One Hundred
Thousand Dollars ($100,000.00) (the "Minimum Threshold"), and then only to the
extent of such excess; and (b) for any Losses which, in the aggregate are in
excess of (i) Four Million Dollars ($4,000,000.00) (the "Maximum Liability"), if
such Losses are asserted by the Purchaser on or before the second (2nd)
41
anniversary of the Closing Date (i.e., within two (2) years after the Closing
Date), or (ii) One Million Dollars ($1,000,000.00), if such Losses are asserted
by the Purchaser at any time after the second (2nd) anniversary of the Closing
Date and before the earlier of (A) the fifth (5th) anniversary of the Closing
Date or (B) the expiration of the statute of limitations applicable to a given
claim (the 5th anniversary of the Closing Date, or the expiration of the statute
of limitations period, as applicable, is referred to as the "Expiration of the
Claims Period"). The Stockholder shall not be liable for any Losses asserted
after the Expiration of the Claims Period, time being of the essence.
12.2 Loss. The term "Loss" (in its singular and plural form as appropriate)
means, to the extent not covered by insurance from time to time maintained by
the Company, any loss, liability, obligation, claim, demand, lawsuit, action,
payment, assessment, costs, expenses (including without limitation, (i)
interest, penalties, fines, and reasonable attorneys' fees and expenses, (ii)
reasonable attorneys' fees and expenses necessary to enforce rights to
indemnification hereunder, and (iii) reasonable consultant's fees and other
costs of defense or investigation), and interest on any amount payable to a
third party as a result of the foregoing, in each case whether accrued,
absolute, contingent, known, unknown, or otherwise as of the Closing Date or
thereafter.
12.3 Recovery From Third Parties. In the event any representation or
warranty of the Company or of Stockholder is incorrect in any material respect
due to an act or omission of a third party (for example, the Company's
accountants or Welfare Benefit Plan or Pension Benefit Plan Administrators),
Purchaser will first cause the Company to take all commercially reasonable
actions to enforce its rights and remedies against, and to recover any damages
from, the applicable third party, prior to prosecuting any claims against
Stockholder under this Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
PURCHASER
ICI ACQUISITION CORP.
/s/ Xxxxx Xxxx
______________________________
By: Xxxxx Xxxx
Title: Vice President
COMPANY
INNOVATIVE CONCEPTS, INC.
/s/ Xxxx Xxxxxxxxx
______________________________
By: Xxxx Xxxxxxxxx
Title: President
STOCKHOLDER
/s/ Xxxx Xxxxxxxxx
______________________________
Xxxx Xxxxxxxxx
EXHIBITS
Exhibit A: Standstill Agreement
Exhibit B: Form of Non-Competition Agreement
Exhibit C: Escrow Agreement
Exhibit C-1: Amendment to Escrow Agreement
Exhibit D: Confidentiality Agreement (1/27/05)
Exhibit E: Form of Opinion (Stockholder/Company Counsel)
Exhibit F: Form of Opinion (Purchaser's Counsel)
43
