Exhibit 2(d)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of October 9,
2001, (the "Effective Date"), by EDO ACQUISITION II, INC., a Delaware
corporation ("Buyer"); and the individuals named on Exhibit A to this Agreement
(collectively, the "Sellers" and each, individually, a "Seller").
RECITALS
Dynamic Systems, Inc., a Maryland corporation (the "Company"), is a
business engaging in engineering, management and information technology, all of
the capital stock of which is owned by Sellers. Sellers desire to sell, and
Buyer desires to purchase, all of the issued and outstanding shares (the
"Shares") of capital stock of the Company for the consideration and on the terms
set forth in this Agreement, and, in connection with the sale of the Shares, the
Sellers shall enter into the Noncompetition Agreements.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
ADJUSTMENT AMOUNT - as defined in Section 2.5.
BALANCE SHEET - as defined in Section 3.4.
BEST EFFORTS - the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require
the Person subject to that obligation to incur any material expense, to
commence litigation, or to take actions that would result in a
materially adverse change in the benefits to such Person of this
Agreement and the transactions contemplated hereby.
BREACH - a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if
there is or has been (a) any material inaccuracy in or breach of, or
any material failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision, or (b) any claim
(by any Person) or other occurrence or circumstance that is or was
materially inconsistent with such
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representation, warranty, covenant, obligation, or other provision, and
the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence, or circumstance.
BUYER - as defined in the first paragraph of this Agreement.
CLOSING - as defined in Section 2.3.
COMPANY - as defined in the Recitals of this Agreement.
COMPANY CONTRACT - any Contract (a) under which the Company has or may
acquire any rights, (b) under which the Company has or may become
subject to any obligation or liability, or (c) by which the Company or
any of the assets owned or used by it is or may become bound.
CONFIDENTIAL INFORMATION - any and all confidential business
information and any and all information, however documented, that is a
trade secret within the meaning of applicable statutory or case law
concerning the business and affairs of the Company or the Buyer,
whether or not marked as "secret" or "confidential," including (i)
product specifications; data; know-how; formulas; compositions;
processes; designs; sketches; photographs; graphs; drawings; samples;
inventions and ideas; past, current and planned research and
development; current and planned manufacturing and distribution methods
and processes; customer lists; current and anticipated customer
requirements; price lists; market studies; business plans; computer
software and programs; database technologies; concepts, ideas and
methods; (ii) to the extent such information is not publicly disclosed
by the Company or the Buyer in filings with Governmental Bodies, in
press releases or otherwise, all financial statements; financial
projections and budgets; historical and projected sales; capital
spending budgets and plans; the names and backgrounds of key personnel,
personnel training techniques and personnel materials; and (iii) any
and all notes, analysis, compilations, studies, summaries and other
material prepared by or for the Company or the Buyer containing or
based, in whole or in part, on any of the foregoing information.
CONSENT - any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
CONTRACT - any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is
legally binding.
CONVERTIBLE SECURITIES - any options, warrants, rights, convertible
debt or equity securities or other agreement upon the exercise or
conversion of which or pursuant to the terms of which additional shares
of common stock of the Company may be issued.
DAMAGES - as defined in Section 6.2.
DISCLOSURE LETTER - the disclosure letter delivered by Original
Shareholders to Buyer
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concurrently with the execution and delivery of this Agreement as
provided in Section 7.9.
DOD - the United States Department of Defense or any branch or agency
thereof.
EFFECTIVE DATE - as defined in the first paragraph of this Agreement.
EMPLOYMENT AGREEMENT - as defined in Section 2.4(a)(iii).
ENCUMBRANCE - any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership.
ENVIRONMENT - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life,
and any other environmental medium or natural resource.
ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES - any cost, damages,
expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law including
fines, penalties, judgments, awards, settlements, investigative or
inspection costs and financial responsibility for cleanup costs,
corrective action, and other remedial or response action.
ENVIRONMENTAL LAW - any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or
other prohibitions and of the commencements of activities,
such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the
Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human
health or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous
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substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public
interest to recover for injuries done to public assets.
ERISA - the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or
any successor law.
ESCROW AGENT - as defined in the Escrow Agreement.
ESCROW AGREEMENT - as defined in Section 2.4(a)(v).
FACILITIES - any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any
buildings, plants, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by the Company.
FORMER SHAREHOLDERS - as defined in Section 3.30.
FORMER SHAREHOLDERS' RELEASES - as defined in Section 2.4(a)(ii).
GAAP - generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the
other financial statements referred to in Section 3.4(a) and (b) were
prepared.
GOVERNMENTAL AUTHORIZATION - any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise
made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
GOVERNMENTAL BODY - any federal, state, local, municipal, foreign, or
other governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal); or any federal, state, local,
municipal, or foreign body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature (including any court or
administrative tribunal).
GOVERNMENT CONTRACT - a Contract, bid or proposal between the Company
and the DOD or any other Governmental Body, including any facilities
contract for the use of government-owned facilities.
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GOVERNMENT SUBCONTRACT - a Contract, bid or proposal that is a
subcontract between the Company and any third party relating to a prime
contract with the DOD or any other Governmental Body.
HAZARDOUS ACTIVITY - the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release,
storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on,
under, about, or from the Facilities or any part thereof into the
Environment, and any other act, business, operation, or thing that
increases the danger, or risk of danger, or poses an unreasonable risk
of harm to persons or property on or off the Facilities, or that may
affect the value of the Facilities or the Company.
HAZARDOUS MATERIALS - any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under
or pursuant to any Environmental Law, including any admixture or
solution thereof, and specifically including petroleum and all
derivatives thereof or synthetic substitutes therefore and asbestos or
asbestos-containing materials.
INTELLECTUAL PROPERTY ASSETS - as defined in Section 3.22(a).
IRC - the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
IRS - the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of
the Treasury.
KNOWLEDGE - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent person having the information, position and
responsibilities of such individual should be aware of such
fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if (i) any individual who is
serving as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter; or (ii) any individual who has at any
time served in any such capacity had Knowledge of such fact or other
matter at the time he or she was serving.
LEGAL REQUIREMENT - any federal, state, local, municipal, foreign,
international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute, or treaty.
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MATERIAL ADVERSE CHANGE - with respect to any Person, any material
adverse change in the business, operations, assets (including levels of
working capital and components thereof), condition (financial or
otherwise), operating results, liabilities, obligations, employee
relations or prospects of such Person or any material casualty loss or
damage to the assets of such Person, whether or not covered by
insurance (it being understood, however, that if such loss is covered
by insurance and as a result there is no adverse effect, then no
Material Adverse Change has occurred).
MATERIAL ADVERSE EFFECT - with respect to any Person, a material
adverse effect on the business, operations, assets (including levels of
working capital and components thereof), condition (financial or
otherwise), operating results, liabilities, obligations, employee
relations or prospects of the Company or which have a material adverse
effect upon the ability of the Person to perform its obligations
pursuant to this Agreement.
NET BOOK VALUE - (i) total assets of the Company less good will and any
other intangible assets, minus (ii) total liabilities of the Company
exclusive of liabilities between or among the Company, Sellers and
Related Persons of Seller which are to be cancelled at the Closing, all
as determined in accordance with GAAP.
NONCOMPETITION AGREEMENTS - as defined in Section 2.4(a)(iv).
OCCUPATIONAL SAFETY AND HEALTH LAW - any Legal Requirement designed to
provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by
industry associations and insurance companies), designed to provide
safe and healthful working conditions.
ORDER - any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
ORDINARY COURSE OF BUSINESS - an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; and
(b) such action is not required to be expressly authorized by the
board of directors of such Person (or by any Person or group
of Persons exercising similar authority).
ORGANIZATIONAL DOCUMENTS - the articles or certificate of incorporation
and the bylaws of a corporation, and any amendment to either of the
foregoing.
ORIGINAL SHAREHOLDERS--collectively, Xxxx Xxxxxxxxxxx, Xxxxx Xxxxxx,
Xxxxxx Xxxxxx and Xxxxxx X. Xxxxxxxx, and each, individually, an
"Original Shareholder.
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" PERSON - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor
union, or other entity or Governmental Body.
PROCEEDING - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by
or before, or otherwise involving, any Governmental Body or arbitrator.
RELATED PERSON - with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or any one or more members
of such individual's Family hold (individually or in the
aggregate) a Material Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar
capacity).
With respect to a Person other than an individual:
(a) any Person that directly or indirectly controls, is directly
or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause (b)
or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the
individual or the individual's spouse within the second degree, and
(iv) any other natural person who resides with such individual, and (b)
"Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the
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Securities Exchange Act of 1934) of voting securities or other voting
interests representing at least ten percent (10%) of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least ten percent (10%) of the outstanding equity
securities or equity interests in a Person.
RELEASE - any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment,
whether intentional or unintentional.
REPRESENTATIVE - with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial
advisors.
SECURITIES ACT - the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
SELLERS - as defined in the first paragraph of this Agreement.
SELLERS' RELEASES - as defined in Section 2.4(a)(ii).
SELLERS' REPRESENTATIVE - as defined in Section 7.8.
SHARES - as defined in the Recitals of this Agreement.
TAX - any tax, levy, duty, assessment, deficiency or other fee and any
related charge or amount (including any fine, penalty, interest or
addition to tax) imposed, assessed or collected by or under the
authority of any Governmental Body or payable to any tax-sharing
agreement or other Contract relating thereto.
TAX RETURN - any return (including any information return), report,
statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted
to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with
any Legal Requirement relating to any Tax.
THREAT OF RELEASE - a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
THREATENED - a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances
exist, that would lead a prudent Person to conclude that such a claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
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2. SALE AND TRANSFER OF SHARES; CLOSING.
2.1 SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Sellers will sell and transfer the Shares to Buyer free and clear
of all Encumbrances, and Buyer will purchase the Shares from Sellers.
2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Shares is Thirteen Million Six Hundred Thousand Dollars ($13,600,000) reduced or
increased by the Adjustment Amount as set forth in Sections 2.5 and 2.6.
2.3 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place simultaneously with the execution and delivery of this
Agreement.
2.4 CLOSING OBLIGATIONS. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) in form and substance
satisfactory to Buyer, with signatures medallion guaranteed for transfer to
Buyer;
(ii) releases in the form of Exhibit 2.4(a)(ii)(1)
executed by Sellers (collectively, "Sellers' Releases") and releases in the form
of Exhibit 2.4(a)(ii)(2) executed by each of the Former Shareholders
(collectively, "Former Shareholders' Releases");
(iii) employment agreements in form satisfactory to
Buyer, executed by Xxxx Xxxxxxxxxxx, Xxxx Xxxxxx and Xxxxx Xxxxxxxx and a
consulting agreement in form satisfactory to Buyer, executed by Xxxxx Xxxxxx
(collectively, the "Employment Agreements");
(iv) noncompetition agreements executed by each
Seller in the form of Exhibits 2.4(a)(iv)(1) through (5) (collectively, the
"Noncompetition Agreements");
(v) an Escrow Agreement in the form of Exhibit
2.4(a)(v), executed by each Original Shareholder and the Escrow Agent;
(vi) opinions of Galland, Kharasch, Xxxxxxxxx,
Xxxxxxx & Xxxxxxx, P.C. and Bean, Xxxxxx & Xxxxxx, P.C., dated the Effective
Date, in the form of Exhibits 2.4(a)(vi) (1) and 2.4(a)(vi)(2);
(vii) executed resignations, effective as of Closing,
of each director and officer of the Company;
(viii) the Disclosure Letter executed by Original
Shareholders;
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(ix) copies of Company's Organizational Documents,
certified by a Secretary or Assistant Secretary of the Company to be true,
correct, complete and in full force and effect and unmodified as of the
Effective Date; a complete list of the officers and directors of the Company,
certified by a Secretary or Assistant Secretary of the Company to be true and
correct as of the Effective Date; a long form certificate of good standing from
the Secretary of State of Maryland showing all documents filed in such office
with regard to the Company; and a copy, certified by the office of the Secretary
of State of Maryland, of all documents filed in such office with respect to the
Company.
(x) copies of all Consents required pursuant to
Section 3.2(b) of the Agreement;
(xi) all books of account, minute books, stock record
books, and other records of the Company then in the possession of Sellers or
their Representatives;
(xii) INTENTIONALLY OMITTED; and
(xiii) such other certificates, agreements and other
documents as are listed in the schedule of closing documents.
(b) Buyer will deliver:
(i) to Sellers, the sum of Eleven Million Four
Hundred Fifty Thousand Dollars $11,450,000) by wire transfer to the Sellers'
account specified below:
Xxxxxx X. Xxxxxxxxxxx
ABA: 000000000
Account Number: 0101517704
(ii) to the Escrow Agent, subject to the requirements
of the Escrow Agreement, the sum of Two Million One Hundred Fifty Thousand
Dollars ($2,150,000), by wire transfer to the following account:
CHEVY CHASE BANK
ABA #000000000
CHEVY CHASE, MD
CREDIT TO DDA #014381117
NOTIFICATION: TRUST OPERATIONS
ADDITIONAL INFORMATION: FFC TO Dynamic Systems Escrow
#CH200127
(iii) to Sellers, the additional consideration
specified in the Noncompetition Agreements in the aggregate amount of Two
Hundred Thousand Dollars ($200,000) by wire transfer to the account specified in
Section 2(b)(i);
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(iv) the Employment Agreements, executed by Company;
(v) the Escrow Agreement, executed by Buyer; and
(vi) opinion of Esanu Katsky Xxxxxx & Siger, LLP,
dated as of the Effective Date, addressing the due authorization of the
Agreement by, and the enforceability of the Agreement against, Buyer.
(c) All of the transactions to be concluded at the Closing of
this Agreement shall be deemed concluded simultaneously. Unless waived, no
transaction or delivery shall be deemed finally concluded unless and until all
such transactions are concluded.
(d) Each Seller agrees that Sellers shall be solely
responsible for distributing among themselves the amounts delivered jointly to
Sellers by wire transfer to the account specified in Section 2.4(b)(i), and that
amounts so delivered shall be deemed appropriately distributed to each Seller in
accordance with this Agreement and the Noncompetition Agreement. Sellers have
directed that certain payments be delivered to the account of Xxxxxx X.
Xxxxxxxxxxx a/k/a Xxxx Xxxxxxxxxxx as nominee and agent for all Sellers, and
each Seller agrees to look solely to Xxxx Xxxxxxxxxxx with regard to amounts
delivered to such account and to bear any and all risk of loss associated with
the use of such account. Buyer's delivery of funds via wire transfer in the
amounts and to the accounts specified in Section 2.4(b) shall, to the extent of
the funds so delivered and subject to the terms of the Escrow Agreement, fully
and finally discharge the obligation of Buyer with regard to the payment to
Sellers of the Purchase Price and the additional consideration specified in the
Noncompetition Agreements.
2.5 ADJUSTMENT AMOUNT
The Adjustment Amount (which may be a positive or negative number) will
be equal to (a) the Net Book Value as of the Effective Date determined in
accordance with Section 2.6 and GAAP, minus (b) Net Book Value as shown on the
February 28, 2001 Balance Sheet.
2.6 ADJUSTMENT PROCEDURE
(a) Sellers will prepare or cause to be prepared consolidated
financial statements ("Closing Financial Statements") of the Company as of the
Effective Date in accordance with GAAP for the period from the date of the
Balance Sheet through the close of business on the day before the Effective
Date, including a computation of Net Book Value as of the Effective Date. The
fees and expenses of Sellers (including the fees and expenses of Sellers'
counsel, accountants, brokers, representatives and other agents), to the extent
paid or to be paid by Company as permitted hereunder, shall be reflected either
as a reduction in cash or as a liability in the Closing Financial Statements,
and no fees or expenses of Sellers shall be paid by the Company after the
Closing that are not reflected as liabilities on the Closing Financial
Statements. Sellers will deliver the Closing Financial Statements to Buyer
within 30 days after the Effective Date. If within 30 days following Buyer's
receipt of the Closing Financial Statements, Buyer has not given Sellers'
Representative notice of its objection to the Closing Financial Statements (such
notice must contain a statement of the basis of Buyer's objection),
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then the Net Book Value reflected in the Closing Financial Statements will be
used in computing the Adjustment Amount. If Buyer gives such notice of objection
and Buyer and the Seller's Representative cannot agree with regard to such
objection within 14 days thereafter, then the issues in dispute will be
submitted to nationally recognized certified public accountants mutually agreed
upon by the parties (which have not been engaged by either party or their
Subsidiaries for at least two years prior to the date of delivery to Buyer of
the Closing Financial Statements) (the "Accountants"), for resolution. If issues
in dispute are submitted to the Accountants for resolution, (i) within fifteen
(15) business days after request, each party will furnish to the Accountants
such work papers and other documents and information relating to the disputed
issues as the Accountants may request and are available to that party or its
Subsidiaries (or its independent public accountants), and will be afforded the
opportunity to present to and discuss with the Accountants any material relating
to the dispute prior to the Accountants' determination; (ii) the determination
by the Accountants, as set forth in a notice delivered to Buyer and the Seller's
Representative by the Accountants, will be binding and conclusive on Buyer and
all Sellers in the absence of manifest error; and (iii) Buyer and Sellers will
each bear 50% of the fees of the Accountants for such determination unless all
issues are resolved against either Buyer or Sellers, in which event the
Accountants may, in their discretion, award arbitration expenses, including the
Accountants' fees, and counsel fees to the prevailing party.
(b) By the tenth business day following the final
determination of the Adjustment Amount, if the Purchase Price (after
consideration of the Adjustment Amount) is greater than the payment made
pursuant to Section 2.4(b)(i) and 2.4(b)(ii), Buyer will pay the difference to
Sellers, and if the Purchase Price (after consideration of the Adjustment
Amount) is less than such amount, Sellers will pay the difference to Buyer. All
payments will be made together with interest at the publicly announced prime
rate charged by Fleet Bank beginning on the Effective Date and ending on the
date of payment. Payments must be made in immediately available funds. The
Purchase Price shall be the Purchase Price as adjusted by the Adjustment Amount.
Payments to Sellers must be made in the manner set forth in Section 2.4(b)(i).
Payments to Buyer must be made by wire transfer to such bank account as Buyer
will specify. Any good faith dispute in the calculation of the Adjustment Amount
will not constitute a breach of any of the representations or warranties of
either Buyer or Sellers hereunder and will not give either party any right to
indemnification hereunder.
3. REPRESENTATIONS AND WARRANTIES OF ORIGINAL SHAREHOLDERS.
Original Shareholders jointly and severally represent and warrant to
Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland, with full corporate power and authority to conduct its business as it
is now being conducted, to own or use the properties and assets that it purports
to own or use, and to perform all its obligations under Company Contracts. The
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of Virginia, California, and Florida. With the exception
of the State of Rhode Island, there is no other state or other jurisdiction in
which either
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the ownership or use of the properties owned or used by the Company, or the
nature of the activities conducted by it, requires such qualification, except
for those jurisdictions in which the failure to qualify will not have a Material
Adverse Effect.
3.2 NO CONFLICT. Except as set forth in Part 3.2 of the Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated hereby will,
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of the Company, or (B) any
resolution adopted by the Board of Directors or the stockholders of the Company;
(b) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Company, or any of the
assets owned or used by the Company, or, to the Knowledge of the Company or
Original Shareholders, any Seller, may be subject;
(c) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
(d) cause the Company to become subject to, or to become
liable for the payment of, any Tax;
(e) to the Knowledge of the Company or Original Shareholders,
cause any of the assets owned by the Company to be reassessed or revalued by any
taxing authority or other Governmental Body;
(f) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Company Contract; or
(g) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by the Company.
Neither the Sellers nor the Company is or will be required to give any notice to
or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
3.3 CAPITALIZATION. The authorized equity securities of the Company
consist of 410,000 shares of Class A voting common stock, par value $.00108, and
41,000 shares of
13
Class B non-voting stock, par value $.00108, of which a total of 43,426 shares
of said Class A and 2,547 shares of Class B are issued and outstanding and
constitute the Shares. Sellers are the record and beneficial owners and holders
of the Shares, free and clear of all Encumbrances, the Shares constitute all of
the issued and outstanding equity securities of the Company and each Seller is
the sole record and beneficial owner of the Shares set forth after his name on
Part 3.3 to the Disclosure Letter as evidenced by the share certificates
identified by number as set forth in said Part 3.3. No legend or other reference
to any purported Encumbrance appears upon any certificate representing equity
securities of the Company other than an investment legend pursuant to the
Securities Act. All of the outstanding equity securities of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
There are no options, warrants, Convertible Securities or other Contracts upon
the exercise or conversion of which or pursuant to the terms of which any equity
securities or other securities of the Company may be issued or transferred by
the Company or any Seller. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company neither owns, nor has any Contract to
acquire, any equity securities or other securities of any Person (other than the
Company) or any direct or indirect equity or ownership interest in any other
business.
3.4 FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a) audited
consolidated balance sheets of the Company as at February 28 in each of the
years 1999 and 2000, and the related audited statements of income, changes in
stockholders' equity, and cash flows for each of the fiscal years then ended,
together with the related notes and the unqualified report thereon of
Xxxxxxxxxx, Xxxxxx & Company, L.L.P., independent certified public accountants;
(b) an audited consolidated balance sheet of the Company as at February 28, 2001
(including the notes thereto, the "Balance Sheet"), and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
fiscal year then ended, together with the related notes and the unqualified
report thereon of Xxxxxxxxxx, Tunick & Company, L.L.P., independent certified
public accountants, and (c) an unaudited balance sheet of the Company as at July
31, 2001, and the related unaudited consolidated statements of income, changes
in stockholders' equity, and cash flow for the five (5) months then ended,
including in each case the notes thereto. Such financial statements fairly
present and reflect the consolidated financial condition and the results of
operations, changes in stockholders' equity, and cash flows of the Company as at
the respective balance sheet dates and for the periods then ended, all in
accordance with GAAP. The audited and unaudited financial statements described
in this Section 3.4 are collectively referred to as the Financial Statements.
The unaudited financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial condition at July 31 and the results of its operations for the five
(5) months then ended. No financial statements of any Person other than the
Company are required by GAAP to be included in the consolidated financial
statements of the Company.
3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct and have been maintained in accordance with
sound business practices except that minute books of the Company do not contain
any minutes of meetings prior to 1989. The minute books of the Company contain
accurate and complete records of all meetings held of,
14
and corporate action taken by, the stockholders, the Boards of Directors, and
committees of the Boards of Directors of the Company, including any actions
taken by written consent in lieu of a meeting since 1989 and, except for minutes
preceding 1989, no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. All of those books and records are now in the
possession of the Company. Sellers have delivered to Buyer copies of the
Organizational Documents of the Company as currently in effect. Records of
meetings held of, and corporate action taken by, the stockholders, the Board of
Directors, and committees of the Board of Directors of the Company preceding
1989 have been inadvertently lost and are no longer in the possession of, or
available to, the Company or Original Shareholders. Nothing that would have been
reflected in such records, if available, materially and adversely affects the
assets, business, prospects, financial condition or results of operation of the
Company as of the Effective Date.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) The Company owns all of the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) as reflected as
owned in the books and records of the Company (including all of the properties
and assets reflected in the Financial Statements and all of the properties and
assets purchased or otherwise acquired by the Company since the date of the
Balance Sheet) except for (i) assets held under leases disclosed in Part 3.6 of
the Disclosure Letter, which information identifies those leases which are
operating leases and capital leases, and (ii) inventory and obsolete equipment
sold since the date of the Balance Sheet in the Ordinary Course of Business and
consistent with past practice. All such material properties and assets are free
and clear of all Encumbrances except mortgages or security interests disclosed
in the Financial Statements as securing specified liabilities or obligations
with respect to which no default (or event that, with notice or lapse of time,
or both, would constitute a default) exists, and liens for current taxes not yet
due.
(b) Part 3.6 of the Disclosure Letter sets forth a complete
and correct description of all material property (personal, real or mixed)
leased by the Company and a list of the leases covering such property. With
respect to each real property lease so listed, Part 3.6 of the Disclosure Letter
sets forth (i) the location of the premises covered by the lease; (ii) the date
of and parties to each lease amendment or modification; (iii) the current lease
termination date; (iv) the annual fixed rental for the current lease year; and
(v) the number and period of any renewal options. The Company has a valid
leasehold interest in all property so listed, binding on Company and, to the
Knowledge of Company or Original Shareholders, on the Lessor of such property,
free and clear of all Encumbrances. The Company enjoys peaceful and undisturbed
possession under all of the leases covering such property, and all such leases
are valid and subsisting, with no default thereunder. The Company owns good and
marketable title to, or has a valid leasehold interest in, all of the real
property used by the Company in its business as now conducted.
(c) INTENTIONALLY OMITTED.
3.7 INTENTIONALLY OMITTED
15
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that
are reflected on the Financial Statements, on Part 3.8 of the Disclosure Letter,
or on the accounting records of the Company as of the Effective Date
(collectively, the "Accounts Receivable") represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. The Accounts Receivable are current and collectible net of the
respective reserves shown on the Financial Statements. Subject to such reserves,
each of the Accounts Receivable either has been or will be collected in full,
without any set-off, within one hundred eighty (180) days after the day on which
it first becomes due and payable. There is no contest, claim, or right of
set-off, other than returns in the Ordinary Course of Business which are
reflected in the reserves, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable. Part
3.8 of the Disclosure Letter contains a complete and accurate list of all
Accounts Receivable as of a date not earlier than ten (10) days prior to the
Effective Date, which list sets forth the aging of such Accounts Receivable.
3.9 INTENTIONALLY OMITTED
3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in the Financial
Statements and Part 3.10 of the Disclosure Letter, the Company has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Balance Sheet and current
liabilities incurred in the Ordinary Course of Business since the date thereof.
3.11 TAXES.
(a) The Company has filed or caused to be filed (on a timely
basis since 1995) all Tax Returns that are or were required to be filed by or
with respect to it, either separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements. Sellers have delivered to Buyer
copies of, and Part 3.11 of the Disclosure Letter contains a complete and
accurate list of, all such Tax Returns relating to income or franchise taxes
filed since 1995. The Company has paid all Taxes that have become due pursuant
to those Tax Returns or otherwise, or pursuant to any assessment received by
Sellers or the Company, except such Taxes, if any, as are listed in Part 3.11 of
the Disclosure Letter and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in the
Financial Statements.
(b) Part 3.11 of the Disclosure Letter contains a complete and
accurate list of all audits of all Tax Returns of the Company, including a
reasonably detailed description of the nature and outcome of each audit and a
schedule of all pending audits. All deficiencies proposed as a result of such
audits have been paid, reserved against, settled, or, as described in Part 3.11
of the Disclosure Letter, are being contested in good faith by appropriate
proceedings. Part 3.11 of the Disclosure Letter describes all adjustments to the
United States federal income Tax Returns filed by the Company or any group of
corporations including the Company for all taxable years since 1995, and the
resulting deficiencies proposed by the IRS. Except as described in Part 3.11
16
of the Disclosure Letter, none of Sellers nor the Company has given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other Person) of any statute of limitations relating
to the payment of Taxes of the Company or for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes
on the books of the Company are adequate (determined in accordance with GAAP)
and are at least equal to the Company's liability for Taxes. To the Knowledge of
Company or Original Shareholders, there exists no proposed tax assessment
against the Company except as disclosed in the Financial Statements or in Part
3.11 of the Disclosure Letter. No consent to the application of Section
341(f)(2) of the IRC has been filed with respect to any property or assets held,
acquired, or to be acquired by the Company. All Taxes that the Company is or was
required by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by (or that include on a
consolidated basis) the Company are true, correct, and complete. Except as set
forth in Part 3.11 of the Disclosure Letter, there is no tax sharing agreement
that will require any payment by the Company after the date of this Agreement.
The Company is not, and within the five-year period preceding the Effective Date
has not been, an "S" corporation.
3.12 NO MATERIAL ADVERSE CHANGE. Since the date of the Balance Sheet,
there has not been any Material Adverse Change affecting the Company, and no
event has occurred or circumstance exists that may result in such a Material
Adverse Change.
3.13 EMPLOYEE BENEFITS.
(a) With respect to the Company and all employees heretofore
employed by the Company:
(i) Except as disclosed in Part 3.13 of the
Disclosure Letter, the Company has not maintained, participated in, contributed
to, or been required to contribute to any "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA), including any multi-employer plan.
(ii) Except as disclosed in Part 3.13 of the
Disclosure Letter, the Company has not maintained, participated in, contributed
to, or been required to contribute to any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA), including any multi-employer plan.
(iii) Part 3.13 of the Disclosure Letter lists each
deferred compensation plan, pension plan, profit sharing plan, bonus plan, stock
option plan, employee stock purchase plan, incentive plan, insurance plan,
medical plan and any other employee benefit plan, agreement, arrangement or
commitment (whether funded or unfunded, written or oral, qualified or
nonqualified) which the Company has sponsored, established or maintained, in
which the
17
Company has otherwise participated or to which the Company has contributed (or
to which the Company is or was required to contribute under any Legal
Requirement) for the benefit of or in which any employee, terminated employee,
director, or independent contractor participates. The plans, agreements,
arrangements and commitments listed or required to be listed in Part 3.13 of the
Disclosure Letter are referred to collectively as the "Company Plans." Part 3.13
of the Disclosure Letter lists (and Sellers have heretofore delivered to Buyer
true and correct copies of) all employee manuals currently utilized by the
Company with respect to the Company's employees.
(b) Except as disclosed in Part 3.13 of the Disclosure Letter,
(i) each of the Company Plans complies and has complied in form and operation in
all respects to the applicable requirements of ERISA, the IRC, and other Legal
Requirements applicable thereto; (ii) all required reports, returns and
descriptions (including Form 5500 Annual Reports) have been filed or distributed
appropriately with respect thereto; (iii) all required or discretionary (in
accordance with historical practices) payments, premiums, contributions,
reimbursements or accruals which are due with respect thereto have been paid or,
if not due, have been properly accrued in accordance with GAAP on the Financial
Statements; (iv) no audits, proceedings, claims or demands with respect thereto
have been made by any Company Plan participant or any Governmental Authority,
including, without limitation, the IRS and the Department of Labor; (v) no
Company Plan has any unfunded liabilities which are not reflected on the
Financial Statements; and (vi) with respect to each Company Plan intended to
qualify under IRC Section 401(a) or 403(a), nothing has occurred which would
cause the loss of such qualification or exemption or the imposition of any
penalty or tax liability.
(c) With respect to each Company Plan, Sellers have delivered
to Buyer correct and complete copies of the plan documents and plan summary
descriptions, the most recent determination letter received from the IRS, the
most recent Form 5500 Annual Report, and all related agreements and contracts,
including insurance policies, contracts with third-party administrators or
consultants, and notifications to employees of their rights. In the case of any
unwritten Company Plan, a written description of such Plan has been included in
Part 3.13 of the Disclosure Letter.
(d) Each Company Plan can be terminated within sixty (60)
days, without payment of any additional contribution or amount and without the
vesting or acceleration of any benefits promised by such Plan.
(e) With the exception of an agreement, dated July 5, 2001,
between the Company and Xxxx Xxxxxx, no Company Plan obligates the Company to
pay separation, severance, termination or similar benefits as a result of any
transaction contemplated by this Agreement or solely as a result of a "change of
control." No individual shall accrue or receive any additional benefits, service
or accelerated rights to payments of benefits under any Company Plan as a result
of the transactions contemplated hereby.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
18
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) The Company is, and at all times since January 1,
1998, has been, in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets except where noncompliance will not have a Material
Adverse Effect, and the Company is not subject to any liability or obligation as
a result of the failure of the Company to comply with any Legal Requirements
prior to January 1, 1998;
(ii) No event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may constitute or result in a
violation by the Company of, or a failure on the part of the Company to comply
with, any Legal Requirement, or (B) may give rise to any obligation on the part
of the Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature except where such violation, failure or obligation
will not have a Material Adverse Effect; and
(iii) The Company has not received, at any time since
January 1, 1998, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement, or (B) any actual, alleged, possible, or potential obligation
on the part of the Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature and the Company is not subject to any
liability or obligation with respect to any remedial action resulting from an
event or notice which the Company received prior to January 1, 1998.
(b) Part 3.14 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by the Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, the Company. To the Knowledge of the Company or Original Shareholders, each
Governmental Authorization listed or required to be listed in Part 3.14 of the
Disclosure Letter is valid and in full force and effect. Except as set forth in
Part 3.14 of the Disclosure Letter:
(i) The Company is, and at all times since January 1,
1998 has been, in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part 3.14
of the Disclosure Letter except where noncompliance will not result in a
Material Adverse Effect, and the Company is not subject to any liability or
obligation with respect to any failure of compliance with any Governmental
Authorization prior to January 1, 1998;
(ii) Except where the consequences of such event or
circumstances do not result in a Material Adverse Effect, no event has occurred
or circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental Authorization listed or
required to be listed in Part 3.14 of the Disclosure Letter, or (B) result
directly or indirectly in the revocation, withdrawal, suspension, cancellation,
or termination of, or
19
any modification to, any Governmental Authorization listed or required to be
listed in Part 3.14 of the Disclosure Letter;
(iii) The Company has not received, at any time since
January 1, 1998, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) All applications required to have been filed for
the renewal of the Governmental Authorizations listed or required to be listed
in Part 3.14 of the Disclosure Letter have been duly filed on a timely basis
with the appropriate Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations have been duly made
on a timely basis with the appropriate Governmental Bodies except where the
failure to file will not result in a Material Adverse Effect.
The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its businesses in the manner
in which it currently conducts and operates such businesses and to permit the
Company to own and use its assets in the manner in which it currently owns and
uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS. Except as set forth in Part 3.15 of the
Disclosure Letter, there is no pending or, to the Knowledge of the Company or
Original Shareholders, Threatened Proceeding that has been commenced by or
against the Company or that otherwise relates to or may affect the business of,
or the assets owned or used by, the Company, or that challenges, or that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated hereby. There is no Order
to which the Company, or any of the assets owned or used by the Company, is
subject, and to the Knowledge of the Company or Original Shareholders there is
no Order to which any Seller is subject that relates to the business of, or any
of the assets owned or used by, the Company.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part
3.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company
has conducted its business only in the Ordinary Course of Business and there has
not been any:
(a) change in the Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
the Company; grant of any phantom or similar rights which give any Person any
interest in any portion of the revenue or earnings of the Company; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by the Company of
any shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the Company;
20
(c) payment or increase by the Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer, or
employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee (except in the Ordinary Course of Business and in
accordance with the policies set forth in Part 3.16 of the Disclosure Letter or
as provided below) ;
(d) retirement, resignation, or other termination of the
employment of any key employee nor any notice or notification regarding any
intended retirement, resignation, or other termination of the employment of any
key employee.
(e) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
the Company or any announcements, whether formal or informal, as to any of the
foregoing;
(f) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, which has or may have a
Material Adverse Effect on the Company;
(g) entry into, termination of, or receipt of formal or
informal notice or advice of termination of (i) any license, distributorship,
dealer, sales representative, joint venture, credit, or similar agreement, or
(ii) any Contract or transaction involving a total remaining commitment by or to
the Company of at least $100,000;
(h) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;
(i) cancellation or waiver of any claims or rights with a
value to the Company in excess of $100,000;
(j) material change in the accounting methods used by the
Company from that reflected on the Financial Statements; or
(k) agreement, whether oral or written and whether formal or
informal, by the Company to do any of the foregoing.
3.17 CONTRACTS; NO DEFAULTS.
(a) Part 3.17(a) of the Disclosure Letter contains a complete
and accurate list, and Sellers have heretofore delivered or made available to
Buyer true and complete copies, of:
21
(i) each Company Contract that involves performance
of services or delivery of goods or materials by the Company of an amount or
value in excess of $100,000;
(ii) each Company Contract that involves performance
of services or delivery of goods or materials to the Company of an amount or
value in excess of $100,000;
(iii) each Company Contract that was not entered into
in the Ordinary Course of Business and that involves expenditures or receipts of
the Company in excess of $50,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other Company Contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal property
leases and installment and conditional sales agreements having a value per item
or aggregate payments of less than $50,000 and with terms of less than one
year);
(v) each licensing agreement or other Company
Contract with respect to patents, trademarks, copyrights, or other intellectual
property, including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each collective bargaining agreement and other
Company Contract to or with any labor union or other employee representative of
a group of employees;
(vii) each joint venture, partnership, and other
Company Contract (however named) involving a sharing of profits, losses, costs,
or liabilities by the Company with any other Person;
(viii) each Company Contract containing covenants
that in any way purport to restrict the business activity of the Company or any
Affiliate of the Company or limit the freedom of the Company or any Affiliate of
the Company to engage in any line of business or to compete with any Person;
(ix) each Company Contract providing for payments to
or by any Person based on sales, purchases, or profits, other than direct
payments for goods;
(x) each power of attorney affecting the Company that
is currently effective and outstanding;
(xi) each Company Contract entered into other than in
the Ordinary Course of Business that contains or provides for an express
undertaking by the Company to be responsible for consequential damages;
(xii) each Company Contract for capital expenditures
in excess of $50,000;
22
(xiii) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance extended by the
Company; and
(xiv) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably complete details
concerning such Contracts (including the parties to the Contracts, the amount of
the remaining commitment of the Company under the Contracts) and any oral
modifications of the Contracts.
(b) Except as set forth in Part 3.17(b) of the Disclosure
Letter:
(i) To the Knowledge of the Company or Original
Shareholders, none of the Sellers (and no Related Person of any Seller) has or
may acquire any rights under or has or may become subject to any obligation or
liability under, any Contract that relates to the business of, or any of the
assets owned or used by, the Company; and
(ii) to the Knowledge of the Company or Original
Shareholders, no officer, director, agent, employee, consultant, or contractor
of the Company is bound by any Contract that purports to limit the ability of
such officer, director, agent, employee, consultant, or contractor to (A) engage
in or continue any conduct, activity, or practice relating to the business of
the Company, or (B) assign to the Company or to any other Person any rights to
any invention, improvement, or discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure
Letter, each Contract identified or required to be identified in Part 3.17(a) of
the Disclosure Letter is in full force and effect and is valid and enforceable
in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure
Letter:
(i) the Company is, and at all times since the date
of the respective Contracts (including any Contracts which have been superseded
by the present Contracts) has been, in full compliance with all applicable terms
and requirements of each Contract under which the Company has or had any
obligation or liability or by which the Company or any of the assets owned or
used by the Company is or was bound except where noncompliance will not have a
Material Adverse Effect;
(ii) to the Knowledge of the Company or Original
Shareholders, each other Person that has or had any obligation or liability
under any Contract under which the Company has or had any rights is, and at all
times since January 1, 1998, has been, in full compliance with all applicable
terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give the Company or any other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Company
23
Contract except where the consequences of such event will not have a Material
Adverse Effect; and
(iv) the Company, since the date of the respective
Contracts (including any Contracts which have been superseded by the present
Contracts), has not given to nor received from any other Person any notice or
other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to the
Company under current or completed Contracts with any Person and, to the
Knowledge of the Company or Original Shareholders, no such Person has made
written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture,
or provision of products or services by the Company have been entered into in
the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement. To the best of the Original Shareholders' and the
Company's Knowledge, all such Contracts can be completed at a profit, within the
time specified therein, utilizing only personnel now employed by and assets now
owned by the Company.
(g) Except as set forth in Part 3.17(g) of the Disclosure
Letter:
(i) (A) the Company has complied with all material
terms and conditions of each Government Contract or Government Subcontract, (B)
the Company has complied in all material respects with all requirements for all
Legal Requirements or agreements pertaining to each Government Contract or
Government Subcontract and (C) all representations and certifications executed,
acknowledged or set forth in or pertaining to each Government Contract or
Government Subcontract were complete and correct in all material respects as of
their effective date and the Company has complied in all material respects with
all such representations and certifications;
(ii) (A) neither the U.S. Government nor any prime
contractor, subcontractor or other Person has notified the Company, either in
writing or orally, that the Company has breached or violated any Legal
Requirement, certification, representation, clause, provision or other
requirement pertaining to any Government Contract or Government Subcontract, (B)
no termination for convenience, termination for default, cure notice or show
cause notice is currently in effect pertaining to any Government Contract or
Government Subcontract, (C) no material cost incurred by the Company pertaining
to any Government Contract or Government Subcontract has been questioned or
challenged by representatives of the Administrative Contracting Officer or the
Defense Contract Audit Agency, has been disallowed by the U.S. Government, or
has been or, to the Knowledge of the Company or Original Shareholders, now is,
the subject of any investigation, and (D) no amount of money due to the Company,
pertaining to any Government Contract or Government Subcontract has been
withheld or set off nor has any claim been made to withhold or set off money,
and the Company is entitled
24
to all progress payments received with respect thereto;
(iii) (A) to the Knowledge of Company or Original
Shareholders, neither the Company nor any of its directors, officers, employees,
consultants or agents is or during the past three years has been under
administrative, civil or criminal investigation, indictment or information by
any Governmental Body with respect to any alleged irregularity, misstatement or
omission arising under or relating to any Government Contract or Government
Subcontract, and (B) during the past five years, the Company has not conducted
or initiated any internal investigation or made a voluntary disclosure to any
Governmental Body with respect to any alleged irregularity, misstatement or
omission arising under or relating to a Government Contract or Government
Subcontract;
(iv) there exist (A) no outstanding claims against
the Company, either by any Governmental Body or by any prime contractor,
subcontractor, vendor or other Person, arising under or relating to any
Government Contract or Government Subcontract and (B) no material disputes
between the Company and any Governmental Body under the Contract Disputes Act or
any other federal statute or regulation or between the Company and any prime
contractor, subcontractor or vendor arising under or relating to any Government
Contract or Government Subcontract;
(v) to the Knowledge of Company or Original
Shareholders, the Company has no interest in any pending or potential claim
against any Governmental Body or any prime contractor, subcontractor or vendor
arising under or relating to any Government Contract or Government Subcontract,
and Part 3.17(g) of the Disclosure Letter lists each Government Contract or
Government Subcontract which is currently under audit by any Governmental Body
or any other person that is a party to such Government Contract or Government
Subcontract;
(vi) the Company has not been debarred or suspended
from participation in the award of contracts with the DOD or any other
Governmental Body (excluding for this purpose ineligibility to bid on certain
contracts due to generally applicable bidding requirements), there exist no
facts or circumstances that would warrant suspension or debarment or the finding
of non-responsibility or ineligibility on the part of the Company, no payment
has been made by the Company or by any Person on behalf of the Company in
connection with any Governmental Contract or Governmental Subcontract in
violation of applicable procurement Legal Requirements or in violation of, or
requiring disclosure pursuant to, the Foreign Corrupt Practices Act, and the
Company's cost accounting and procurement systems and the associated entries
reflected in the Company's financial records with respect to the Government
Contracts and Government Subcontracts are in compliance in all material respects
with all Legal Requirements.
3.18 INSURANCE. Sellers have heretofore delivered or made available to
Buyer true and complete copies of all policies of insurance to which the Company
is a party or under which the Company, or any director of the Company, is
covered at the Effective Date. All such policies are in full force and effect;
the Company has paid all premiums due thereon and otherwise
25
performed all obligations under such policies; such policies, taken together, to
the Knowledge of the Company or Original Shareholders, provide adequate
insurance for all risks to which the Company is normally exposed; and such
policies are sufficient for compliance with all Legal Requirements and Contracts
to which the Company is a party or by which its assets are bound. The Company
has given adequate notice of all claims under such policies to the issuers of
such policies so as to preserve the Company's rights thereunder.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in Part 3.19 of the
disclosure letter:
(a) The Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law except where any such noncompliance, violation or
liability would not have a Material Adverse Effect. None of Original
Shareholders and the Company has Knowledge of any basis to suspect, nor has any
of them received any actual or, to the Knowledge of Original Shareholders and
the Company, Threatened Order, notice, citation, inquiry, warning or other
communication that relates to Hazardous Activity, Hazardous Materials, or any
alleged, actual or potential violation or failure to comply with any
Environmental Law or any alleged, actual or potential obligation to undertake or
bear the cost of any Environmental, Health, or Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which the Company has had an interest, or with respect to
any property or facility to which Hazardous Materials generated, manufactured,
refined, transferred, imported, used or processed by the Company or any other
Person for whose conduct it is or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled or
received. To the Knowledge of the Company or Original Shareholders, no other
person for whose conduct the Company is or may be held responsible has received
any such actual or Threatened Order, notice, citation, inquiry, warning or other
communication.
(b) There are no pending or, to the Knowledge of the Company
or Original Shareholders, Threatened claims, Encumbrances, or other restrictions
of any nature, resulting from any Environmental, Health, and Safety Liabilities
or arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or any other properties and assets (whether
real, personal, or mixed) in which the Company has or had an interest.
(c) INTENTIONALLY OMITTED
(d) None of Sellers and the Company, or any other Person for
whose conduct they are or may be held responsible, has any Environmental,
Health, and Safety Liabilities with respect to the Facilities or, to the
Knowledge of Original Shareholders or the Company, with respect to any other
properties and assets (whether real, personal, or mixed) in which the Company
(or any predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets
except liabilities which will not result in a Material Adverse Effect.
(e) There are no Hazardous Materials present on or in the
Environment at the
26
Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon except
such Hazardous Materials, if any, the presence of which will not have a Material
Adverse Effect. To the Knowledge of the Company or Original Shareholders, none
of Sellers and the Company, nor any other Person for whose conduct they are or
may be held responsible, or any other Person, has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in which the
Company has or had an interest except in full compliance with all applicable
Environmental Laws.
(f) There has been no Release or, to the Knowledge of the
Company or Original Shareholders, Threat of Release, of any Hazardous Materials
at or from the Facilities or at any other locations where any Hazardous
Materials were generated, manufactured, refined, transferred, produced,
imported, used, or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal, or mixed) in which the Company
has or had an interest, or to the Knowledge of the Company or Original
Shareholders, any geologically or hydrologically adjoining property, whether by
Sellers, the Company, or any other Person.
(g) Sellers have delivered to Buyer true and complete copies
and results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Sellers or the Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by Sellers, the Company, or any other Person for whose conduct they are or may
be held responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Company, including each employee on leave of absence or layoff status: name; job
title; date hired, current compensation paid or payable and any change in
compensation since January 1, 1999; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under the Company's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other employee pension benefit plan or employee welfare benefit
plan, or any other employee benefit plan.
(b) To the Knowledge of the Company or Original Shareholders,
no employee or director of the Company is a party to, or is otherwise bound by,
any agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee or director and any other
Person ("Proprietary Rights Agreement") that in any way adversely affects or
will affect (i) the performance of his duties as an employee or director of the
27
Company, or (ii) the ability of the Company to conduct its business, including
any Proprietary Rights Agreement with Sellers or the Company by any such
employee or director. To Original Shareholders' or the Company's Knowledge, and
with the exception of Xxxxx Xxxxxx, Xxxxxx Xxxxxx and Xxxxxx X. Xxxxxxxx, no
director, officer, or other key employee of the Company intends to terminate his
employment with the Company.
(c) Part 3.20 of the Disclosure Letter also contains a
complete and accurate list of the following information for each retired
employee or director of the Company, or their dependents, receiving benefits or
scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
(d) Except as set forth in Part 3.20(c) of the Disclosure
Letter, all former and current employees of the Company have executed written
confidentiality and noncompete Contracts with the Company. Except as set forth
in Part 3.20(c) of the Disclosure Letter, each such Contract is in full force
and effect and is valid and enforceable in accordance with its terms. The form
or forms of such Contracts are included in Part 3.20(c) of the Disclosure
Letter.
3.21 LABOR RELATIONS; COMPLIANCE. The Company has not been and is not a
party to any collective bargaining or other labor Contract. There has not been,
there is not presently pending or existing, and, to Original Shareholders' or
the Company's Knowledge, there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any Proceeding
against or affecting the Company relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or other labor or employment dispute
against or affecting the Company or its premises, or (c) any application for
certification of a collective bargaining agent. To Original Shareholders' or the
Company's Knowledge, no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute. There is no
lockout of any employees by the Company, and no such action is contemplated by
the Company. The Company has complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. The Company is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets - The term "Intellectual
Property Assets" includes:
(i) the Company's name, all fictional business names,
trading names, registered and unregistered trademarks, service marks, trade
names and applications (collectively,
28
"Marks");
(ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights");
(iv) all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, designs, unpatentable inventions, drawings, and blue prints
(collectively, "Trade Secrets"), owned or licensed by the Company as licensee or
licensor or used by Company in the operation of Company's businesses as they are
currently conducted.
(b) Agreements - Part 3.22(b) of the Disclosure Letter
contains a complete and accurate list and summary description, including any
royalties paid or received by the Company, of all Contracts relating to the
Intellectual Property Assets to which the Company is a party or by which the
Company is bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs with a
value, in the aggregate, of less than $50,000 under which the Company is the
licensee. There are no outstanding and, to Original Shareholders' or the
Company's Knowledge, no Threatened disputes or disagreements with respect to any
such agreement. The Company has fully complied with all license agreements or
other Contracts relating to each software program used by the Company in
connection with its business as currently conducted, and the Company has
obtained the appropriate number of licenses for all computers and workstations
on which such software is loaded or used.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are, to the
Knowledge of the Company and Original Shareholders, all those necessary for the
operation of the Company's businesses as they are currently conducted. The
Company is the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims, and has the right to
use without payment to a third party all of the Intellectual Property Assets.
(ii) To the Knowledge of the Company or Original
Shareholders, no employee of the Company has entered into any Contract that
restricts or limits in any way the scope or type of work in which the employee
may be engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than the Company. Part 3.22(c)
of the Disclosure Letter contains a complete and accurate list of all former and
current employees of the Company who have executed written contracts with the
Company that assign to the Company or otherwise concern or are related to any
inventions, improvements, discoveries, or other information related to the
business of the Company. The form or forms of
29
such Contracts are included in Part 3.22(c) of the Disclosure Letter.
(d) Patents. The Company owns no patents or patent
applications. Part 3.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all inventions and discoveries of the
Company that, to the Knowledge of Original Shareholders or the Company, may be
patentable. The Company is the owner of all right, title, and interest in and to
each of such inventions and discoveries, free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims. None of the
products manufactured or sold, nor any process or know-how used, nor any service
rendered by the Company, infringes or, to the Knowledge of the Company or
Original Shareholders, is alleged to infringe any patent or the proprietary
right of any other person.
(e) Trademarks. Part 3.22(e) of the Disclosure Letter contains
a complete and accurate list and summary description of all Marks. None of the
Marks has been registered with the United States Patent and Trademark office.
The Company is the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities and other adverse claims. None of the Marks used by the Company
infringes or, to the Knowledge of the Company or Original Shareholders, is
alleged to infringe any trade name, trademark or service xxxx of any third
party, and to Original Shareholders' or the Company's Knowledge, no Xxxx is
infringed or has been challenged or threatened in any way.
(f) Copyrights.
(i) Part 3.22(f) of the Disclosure Letter contains a
complete and accurate list and summary description of all registered Copyrights.
The Company is the owner of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) To Original Shareholders' or the Company's
Knowledge, all registered Copyrights are currently in compliance with formal
legal requirements, are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety days after the
date of Closing.
(iii) No Copyright is infringed or, to Original
Shareholders' or the Company's Knowledge, has been challenged or threatened in
any way. To Original Shareholders' or the Company's Knowledge, none of the
subject matter of any of the Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the work of a
third party.
(iv) All works encompassed by the Copyrights have
been marked with the proper copyright notice except in such cases where failure
to xxxx the work would not result in a Material Adverse Effect.
(g) Trade Secrets.
30
(i) To Original Shareholders' or the Company's
Knowledge, with respect to each Trade Secret, the documentation relating to such
Trade Secret is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use without reliance on
the knowledge or memory of any individual.
(ii) Sellers and the Company have taken all
reasonable precautions to protect the secrecy, confidentiality, and value of
their Trade Secrets.
(iii) The Company has good title and an absolute (but
not necessarily exclusive) right to use the Trade Secrets. To the Knowledge of
the Company or Original Shareholders, the Trade Secrets are not part of the
public knowledge or literature, and have not been used, divulged, or
appropriated either for the benefit of any Person (other than the Company) or to
the detriment of the Company. To the Knowledge of Company or Original
Shareholders, no Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way.
3.23 CERTAIN PAYMENTS. Neither the Company nor any director, officer,
agent, or employee of the Company, or, to Original Shareholders' or the
Company's Knowledge, any other Person associated with or acting for or on behalf
of the Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company or
any Affiliate of the Company, or (iv) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Company.
3.24 DISCLOSURE.
(a) No representation or warranty of Original Shareholders in
this Agreement, and no statement in the Disclosure Letter, omit to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
(b) There is no fact known to any Original Shareholder that
has specific application to any Seller or the Company (other than general
economic or industry conditions) and that materially adversely affects or, as
far as such Original Shareholders can reasonably foresee, materially threatens,
the assets, business, prospects, financial condition, or results of operations
of the Company, that has not been set forth in this Agreement or the Disclosure
Letter.
3.25 RELATIONSHIPS WITH RELATED PERSONS. Except as to the use of a
portion of the IPT CD Rom by Xxxxx Xxxxxx as referenced in, and pursuant to, the
Noncompetition Agreement between Xxxxx Xxxxxx and Buyer of even date, no Seller
or any
31
Related Person of any Seller or of the Company has, or since the first day of
the next to last completed fiscal year of the Company has had, any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to the Company's businesses. No Seller or any
Related Person of any Seller or of the Company is, or since the first day of the
next to last completed fiscal year of the Company has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with the Company, or (ii) engaged in competition with the
Company with respect to any line of the products or services of the Company (a
"Competing Business") in any market presently served by the Company. To Original
Shareholders' or the Company's Knowledge, except as set forth in Part 3.25 of
the Disclosure Letter, no Seller or any Related Person of any Seller or of the
Company is a party to any Contract with, or has any claim or right against, the
Company.
3.26 BROKERS OR FINDERS. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement other than professional fees of any nature paid to Galland, Kharasch,
Xxxxxxxxx, Xxxxxxx & Xxxxxxx, P.C. which shall be paid immediately prior to
Closing.
3.27 BUSINESS RELATIONSHIPS. Part 3.27 of the Disclosure Letter
contains a complete and accurate list of each customer of the Company that
accounted for more than three percent (3%) of the total revenues of the Company
in each of the last three (3) fiscal years of the Company and in the last fiscal
period included in the Financial Statements, and sets forth the total revenues
derived from each such customer during each of such fiscal periods. To the
Knowledge of the Company or Original Shareholders, since the date of the Balance
Sheet, the Company has not suffered any loss of employees or suffered loss of
good will or an adverse change in the relationship with any suppliers,
customers, creditors, agents or others having business relationships with the
Company that materially and adversely affects the business operations or
prospects of the Company. Except as set forth in Part 3.27 of the Disclosure
Letter, the Company has not been involved in any material controversy with any
of its customers or suppliers. The Company has not been advised by any of its
customers or suppliers that such customer or supplier was or is intending to
terminate its relationship with the Company or would not continue to purchase
supplies or services for future periods on account of any dissatisfaction with
the Company's performance or due to the Contemplated Transactions. To the
Knowledge of the Company or Original Shareholders, all business placed by all
employees of the Company has been placed in the name of the Company, and all
fees and compensation on such business have been paid to and are the property of
the Company.
3.28 INDEBTEDNESS BY RELATED PERSONS. To Original Shareholders' or the
Company's Knowledge, all indebtedness heretofore owed to the Company by any
Seller or any Related Person of any Seller has been paid in full. All
indebtedness by the Company to any Seller or Former Shareholder or any Related
Person of any of them, (including any right to indemnification or reimbursement
from the Company, whether pursuant to the Company's Organizational Documents,
contract or otherwise and whether or not relating to claims pending on, or
asserted after, the Effective Date) will be released at the Closing and the
Company will not
32
have any obligation with respect thereto. All such obligations of the Company
are listed on Part 3.28 of the Disclosure Letter.
3.29 CERTAIN PROCEEDINGS. There is no Proceeding that has been
commenced against any Seller or the Company that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To Original Shareholders' or the Company's
Knowledge, no such Proceeding has been Threatened.
3.30 SHAREHOLDER AGREEMENTS; FORMER SHAREHOLDERS. Immediately preceding
the Closing, Two Hundred Fourteen (214) shares of the issued and outstanding
Class A voting common stock and Two Thousand Eighteen (2,018) shares of the
issued and outstanding Class B non-voting common stock were owned, beneficially
and of record, by the individuals (collectively, the "Former Shareholders" and
each, a "Former Shareholder") and in the amounts set forth on Part 3.30 of the
Disclosure Letter. Since the date of the Balance Sheet, no Person has owned or
held any equity securities of the Company other than Sellers and the Former
Shareholders. Pursuant to appropriate purchase agreements (the "Cross Purchase
Agreements") and concurrently with the Closing, Original Shareholders have
acquired all of the Shares previously owned by the Former Shareholders and at
Closing will convey to Buyer all of the issued and outstanding Shares of the
Company, free and clear of all Encumbrances, including any claim or interest of
the Former Shareholders. With the exception of the Cross Purchase Agreement, all
Stockholders' Buy-Sell Agreements, Stock Bonus Agreements, Stock Repurchase
Agreements, or other Contracts which relate to the securities of the Company and
to which the Company, the Sellers, and Former Shareholders or any one or more of
them is a party, have been fully and finally terminated and are no longer of any
force or effect. Each of the Former Shareholders has duly executed and delivered
to Buyer a Former Shareholder's Release, and the Former Shareholder's Release
executed by such Former Shareholder constitutes the legal, valid and binding
obligation of such Former Shareholder, enforceable against such Former
Shareholder in accordance with its terms. Except as set forth in Part 3.30 of
the Disclosure Letter, no Former Shareholder and no Related Person of any Former
Shareholder, is a party to any Contract with, or has any claim or right against,
the Company or any of the Company's securities.
3A. REPRESENTATIONS AND WARRANTIES OF ALL SELLERS.
Each of the Sellers, individually with respect to himself, herself or
itself and not jointly and severally, represents and warrants to Buyer as
follows:
3A.1 AUTHORITY; NO CONFLICT.
(a) The Employment Agreement (if executed by such Seller),
such Seller's Release, the Noncompetition Agreement, such Seller's endorsement
of the certificates evidencing the Shares (or the executed stock power
accompanying such certificates) and the Escrow Agreement (if executed by such
Seller), and each other agreement, certificate or document executed by or on
behalf of such Seller and delivered to Buyer pursuant to this Agreement
(collectively, the "Seller's Closing Documents") and this Agreement constitute
the legal, valid and binding obligations of such Seller, enforceable against
such Seller (such Seller
33
being hereinafter referred to as "the Seller" in this Section 3A) in accordance
with their respective terms. The Seller has the absolute and unrestricted right,
power, authority and capacity to execute and deliver this Agreement and the
Seller's Closing Documents and to perform the Seller's obligations under this
Agreement and the Seller's Closing Documents.
(b) Neither the execution and delivery of this Agreement nor
the consummation or performance of the transactions contemplated hereby will,
directly or indirectly (with or without notice or lapse of time) contravene,
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the transactions contemplated hereby
or to exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which the Seller may be subject.
3A.2 POWERS. Part 3A.2 of the Disclosure Letter contains a complete and
accurate list, and the Seller has heretofore delivered or made available to
Buyer a true and complete copy of, each power of attorney that is currently
effective and outstanding granted by the Seller with respect to any of the
Shares.
3A.3 RELATED PARTY TRANSACTIONS
(a) Neither the Seller nor any Related Person of the Seller
has or may acquire any rights under, or has or may become subject to any
obligation or liability under, any Contract that relates to the business of, or
any of the assets owned or used by, the Company.
(b) Except as set forth in Part 3A.3 of the Disclosure Letter,
neither the Seller nor any Related Person of the Seller is a party to any
Contract with, or has any claim or right against, the Company.
3A.4 DISCLOSURE. There is no fact known to the Seller that has any
specific application to the Seller or to the Company (other than general
economic or industry conditions) and that materially and adversely affects or,
as far as the Seller can reasonably foresee, materially threatens, the assets,
business, prospects, financial condition or results of operations of the
Company, that has not been set forth in this Agreement or the Disclosure Letter.
3A.5 INDEBTEDNESS BY RELATED PERSONS. All indebtedness heretofore owed
to the Company by the Seller or any Related Person of the Seller has been paid
in full, and all indebtedness by the Company to the Seller or any Related Person
of the Seller will be released at the Closing and the Company will not have any
obligation with respect thereto. All such obligations of the Company are listed
on Part 3.28 of the Disclosure Letter.
3A.6 SHARES. The Seller is the sole record and beneficial owner of the
Shares set forth after his or her name on Part 3.3 of the Disclosure Letter,
free and clear of all Encumbrances. No legend or other reference to any
purported Encumbrance appears on any certificate representing the Shares owned
by the Seller other than an investment legend pursuant to the Securities Act.
The Seller is not a party to any option, warrant, purchase right or other
contract or commitment that would require the Seller to sell, transfer or
otherwise dispose of any
34
of the Shares other than this Agreement. The Seller is not a party to any voting
trust, proxy or other agreement or understanding with respect to the voting of
any of the Shares. All of the Shares heretofore owned by the Seller have been
duly endorsed for transfer to Buyer or are accompanied by duly executed stock
powers.
3A.7 BROKERS OR FINDERS. The Seller and his or her agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement other than professional fees of any nature paid to Galland, Kharasch,
Xxxxxxxxx, Xxxxxxx & Xxxxxxx, P.C. which shall be paid immediately prior to
Closing.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
4.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding
obligations of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
(b) Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the Transactions
contemplated hereby by Buyer will give any Person the right to prevent, delay,
or otherwise interfere with any of the Transactions contemplated hereby. Buyer
is not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Transactions contemplated hereby.
4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Transactions contemplated hereby. To Buyer's Knowledge, no such Proceeding has
been Threatened.
4.5 BROKERS OR FINDERS. Buyer and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
5. COVENANTS.
35
5.1 PROTECTION OF RELATIONSHIPS. None of the Sellers will at any time
hereinafter take, and they and each of them will cause the Company not to take,
any action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier or other business associate of the Company
from establishing or maintaining business relationships with the Company.
5.2 FURTHER ASSURANCES. Sellers shall use Sellers' best efforts to
implement the provisions of this Agreement, and for such purpose Sellers, at the
request of Buyer and at no cost to Sellers, at or after the Closing, shall,
without further consideration, promptly execute and deliver, or cause to be
executed and delivered, to Buyer such documents and other instruments in
addition to those required by this Agreement, in form and substance satisfactory
to Buyer, and take all such other actions, as Buyer may reasonably deem
necessary or desirable to implement any provision of this Agreement and/or to
further the transactions contemplated by this Agreement and obtain the benefit
thereof for Buyer. Sellers will take no action to terminate or limit existing or
prior coverages as applicable to the pre-closing activities of the Company or
the Company's ability to make claims under those coverages.
5.3 INTENTIONALLY OMITTED.
5.4 CONFIDENTIALITY AGREEMENT OF SELLERS. Each Seller acknowledges and
agrees that all Confidential Information known or obtained by the Seller,
whether before or after the date hereof, is the property, as appropriate, of the
Company or the Buyer. Therefore, each Seller agrees that the Sellers will not,
at any time, disclose to any unauthorized Persons or use for his own account or
for the benefit of any third party any Confidential Information, whether Sellers
have such information in Sellers' memories or embodied in writing or other
physical form or any computer readable format, without Buyer's written consent,
unless and to the extent that the Confidential Information (i) is or becomes
generally known to and available for use by the public other than as a result of
Sellers' fault or the fault of any other Person bound by a duty of
confidentiality to Buyer or the Company or, (ii) becomes available to Seller on
a non-confidential basis, from a source other than the Company or any of its
employees who are entitled to disclose such information without breach of
confidentiality to the Company; or (iii) to the extent that disclosure is
required by law (in which event Sellers shall give Buyer as much notice of such
disclosure as is practicable and permitted by law and shall cooperate with Buyer
at Buyer's expense to obtain appropriate protective orders). Each Seller agrees
to deliver to Buyer at the time of execution of this Agreement, and at any other
time Buyer may request, all documents, memoranda, notes, plans, records,
reports, and other documentation, models, components, devices, or computer
software, whether embodied in a disk or in other form (and all copies of all of
the foregoing), relating to the businesses, operations, or affairs of the
Company and any other Confidential Information that Seller may then possess or
have under Seller's control. If Seller breaches the covenants set forth in this
Section 5.4, each of Buyer and the Company, in addition to the right to recover
Damages as provided in Section 6 and any other rights it may have, shall have
the right to obtain injunctive or other equitable relief to restrain any breach
or threatened breach or otherwise to specifically enforce the provisions of this
Section 5.4,
36
it being agreed that money damages alone would be inadequate to compensate the
Buyer and the Company and would be an inadequate remedy for such breach.
6. INDEMNIFICATION; REMEDIES.
6.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE.
Subject to Section 6.5, below, all representations, warranties, covenants, and
obligations in this Agreement, and any other certificate or document delivered
pursuant to this Agreement, will survive the Closing. The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the Effective
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty will not affect the
right to indemnification, payment of Damages, or other remedy based on such
representations and warranties. Any payment made by an Original Shareholder to
Buyer pursuant to this Section 6 shall be deemed to be a reduction in the
Purchase Price and shall not be deemed to be an item of income or expense, and
all parties hereto agree to prepare their tax returns consistent therewith.
6.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY ORIGINAL SHAREHOLDERS.
Original Shareholders, jointly and severally, will indemnify and hold harmless
Buyer and the Company and their respective successors and assigns (collectively,
the "Indemnified Persons") for, and will pay to the Indemnified Persons the
amount of, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with:
(a) any Breach of any representation or warranty made by
Original Shareholders in Section 3 of this Agreement;
(b) any product shipped or manufactured by, or any services
provided by, the Company prior to the Effective Date;
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based on any agreement or understanding alleged
to have been made by any such Person with any Seller (or any Person acting on
any Seller's behalf) in connection with the transactions contemplated hereby;
(d) any Breach of any representation or warranty made by any
Seller in this Agreement or any certificate or document delivered by any Seller
pursuant to this Agreement, other than those contained in Section 3 or those
referred to in Section 6.2(c);
(e) any Breach by any Seller of any covenant or obligation of
such Seller in
37
this Agreement or any other agreement or document delivered by such Seller
pursuant to this Agreement;
(f) any claim or right of any Former Shareholder against the
Company or Buyer or any of its securities or otherwise arising in connection
with or related to the transactions or matters described in, or contemplated by,
this Agreement or the Former Shareholder Releases;
(g) any claim by, or related to, Xxxxxx or Xxxxx Xxxxxxx;
(h) any claim related to or arising in connection with the
proceeding styled Xxxxxxx X. Xxxxxxx, Acting Secretary of Labor v. Xxxxx Xxxxxx,
et. al., Case No. L 97-1022 in the United States District Court for the District
of Maryland, or the facts alleged therein or giving rise thereto, excluding,
however, any claim caused by the failure of the Company timely to make the two
remaining $75,000 payments specified in the Consent Judgment filed April 7,
1997;
(i) the failure of Company to qualify to do business in Rhode
Island before the Effective Date; or
(j) any claim that, at the time of the consummation of the
transactions contemplated by this Agreement, any Person other than Sellers owns
or holds, or has any right, title or interest in or to, any equity securities of
the Company.
The remedies provided in this Section 6.2 will not be exclusive of or limit any
other remedies that may be available to Buyer or the other Indemnified Persons.
6.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY ORIGINAL SHAREHOLDERS;
ENVIRONMENTAL MATTERS. Consistent with the provisions of Section 6.2, Original
Shareholders, jointly and severally, will indemnify and hold harmless Buyer and
the other Indemnified Persons for, and will pay to Buyer, the Company, and the
other Indemnified Persons the amount of, any Damages (including costs of
cleanup, containment, or other remediation) arising, directly or indirectly,
from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising
out of or relating to: (i) (A) the ownership, operation, or condition at any
time on or prior to the Effective Date of the Facilities or any other properties
and assets (whether real, personal, or mixed and whether tangible or intangible)
in which Sellers or the Company has or had an interest, or (B) any Hazardous
Materials or other contaminants that were present on the Facilities or such
other properties and assets at any time on or prior to the Effective Date; or
(ii) (A) any Hazardous Materials or other contaminants, wherever located, that
were, or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Sellers or the Company or by any other Person for whose
conduct they are or may be held responsible at any time on or prior to the
Effective Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Sellers or the Company or by any other Person for whose conduct
they are or may be held responsible; or
38
(b) any bodily injury (including illness, disability, and
death, and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
Sellers or the Company or any other Person for whose conduct they are or may be
held responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Company prior to the Effective Date, or from
Hazardous Material that was (i) present or suspected to be present on or before
the Effective Date on or at the Facilities (or present or suspected to be
present on any other property, if such Hazardous Material emanated or allegedly
emanated from any of the Facilities and was present or suspected to be present
on any of the Facilities on or prior to the Effective Date) or (ii) Released or
allegedly Released by Sellers or the Company or any other Person for whose
conduct they are or may be held responsible, at any time on or prior to the
Effective Date.
Buyer will be entitled to control any Cleanup, any related Proceeding, and,
except as provided in the following sentence, any other Proceeding with respect
to which indemnity may be sought under this Section 6.3. The procedure described
in Section 6.8 will apply to any claim solely for monetary damages relating to a
matter covered by this Section 6.3.
6.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement, (b) any Breach by
Buyer of any covenant or obligation of Buyer in this Agreement, (c) any claim by
any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the transactions contemplated hereby, or (d) the failure of Company timely to
make the two remaining $75,000 payments under the Consent Judgment referred to
in Section 6.2(h). Buyer agrees to notify Sellers' Representative when such
payments have been made.
6.5 TIME LIMITATIONS. Original Shareholders will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with on or before the
Effective Date, other than those in Sections 3.3, 3.6, 3.11, 3.13, 3.19, 3.21,
3.23 and 3.30 and those in Section 3A unless within twelve (12) months following
the Effective Date Buyer notifies Original Shareholders of a claim specifying
the factual basis of that claim in reasonable detail to the extent then known by
Buyer; a claim with respect to Sections 3.3, 3.6, 3.11, 3.13, 3.19, 3.21, 3.23
or 3.30 or with respect to Section 3A or a claim for indemnification or
reimbursement not based upon any representation or warranty or any covenant or
obligation to be performed and complied with on or before the Effective Date
(including claims for indemnification under clauses (f) through (j) of Section
6.2), may be made at any time. Buyer will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied on or before the Effective Date, unless
within twelve (12) months following the
39
Effective Date Original Shareholders notify Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Original Shareholders.
6.6 BASKET LIMITATION AND CAP.
(a) Original Shareholders will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or clause (b) of Section 6.2 until the total of all Damages with respect to
such matters exceeds One Hundred Thousand Dollars ($100,000) (the "Basket"), and
then only for the amount by which such Damages exceed One Hundred Thousand
Dollars ($100,000). Original Shareholders will have liability with respect to
the matters described in clause (c), clause (d), clause (e), clause (f), clause
(g), clause (h), clause (i), and clause (j) of Section 6.2 without benefit of
the Basket or other threshold as to the amount thereof.
(b) Each Seller shall have liability for Breach of the
Employment Agreement, if any, and the Noncompetition Agreement executed by such
Seller without benefit of the Basket or other threshold as to the amount
thereof. The liability of each Seller under the Employment Agreement, if any,
and, subject to the provisions of Section 6.6(d), the Noncompetition Agreement
executed by such Seller, shall be several only and not joint and several.
(c) Except as provided below, the liability of each Original
Shareholder with respect the matters described in Section 6.2 and matters
arising under the Employment Agreement, if any, and the Noncompetition Agreement
executed by such Seller shall in no event exceed, in the aggregate, Three
Million Four Hundred Fifty Thousand Dollars ($3,450,000), it being the intent of
the parties that the aggregate liability of all Original Shareholders with
regard to such matters shall not exceed Thirteen Million Eight Hundred Thousand
Dollars ($13,800,000). Any payment made by the Original Shareholders to Buyer
pursuant to this Section 6 shall be deemed a reduction in the Purchase Price and
shall not be deemed to be an item of income or expense, and all parties hereto
agree to prepare their tax returns consistent therewith. Notwithstanding
anything contained in this Section 6.6 to the contrary, the limitations on
liability contained in this Section 6.6(c) shall not be effective with regard to
any willful misrepresentation herein or any intentional Breach of any covenant
or obligation under the Noncompetition Agreement.
(d) Nothing in Sections 6.6(b) or 6.6(c) of this Agreement
shall be construed in any way to limit the right of Buyer to make a claim
against, and seek indemnity from, the Escrow Fund, as defined in the Escrow
Agreement, for the full amount of any Damages sustained by the Buyer and to
which Buyer is entitled pursuant to this Article 6 to the extent that the Escrow
Fund is sufficient to satisfy Buyer's claim. To the extent that Buyer has a
claim for Damages in excess of the Escrow Fund, the provisions of Section 6.6(b)
shall apply. In computing the maximum amount of Damages payable by any Seller
pursuant to Section 6.6(c), any payments from the Escrow Fund shall be deemed to
have been paid proportionately by the Original Shareholders, based on their
respective ownership of the Shares. Notwithstanding the foregoing, Buyer shall
not be entitled to make a claim against, or seek indemnity from, the Escrow Fund
for Damages which arise solely in connection with (i) any Breach of the
40
Employment Agreements or (ii) any Breach of the Noncompetition Agreement of
Xxxxxx; but Buyer shall be entitled to make a claim against, and seek indemnity
from, the Escrow Fund for the full amount of any Damages sustained by Buyer in
connection with any Breach of the Noncompetition Agreements of Xxxx Xxxxxxxxxxx,
Xxxxxx X. Xxxxxxxx, Xxxxx Xxxxxx and Xxxxxx Xxxxxx or any one or more of them.
6.7 BASKET LIMITATION FOR BUYER. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or (b) (except for payment of the Purchase Price) of Section 6.4 until the
total of all Damages with respect to such matters exceeds One Hundred Thousand
Dollars ($100,000), and then only for the amount by which such Damages exceed
One Hundred Thousand Dollars ($100,000). Buyer will have liability with respect
to matters described in clause (c) of Section 6.4 without threshold as to the
amount thereof.
6.8 PROCEDURE FOR INDEMNIFICATION-THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under
Section 6.2, 6.4, or (to the extent provided in the last sentence of Section
6.3) Section 6.3 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party pursuant to this Section 6.8, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 6.8(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will, unless the
claim involves Taxes, be entitled to participate in such Proceeding and, to the
extent that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 6 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (A) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that
41
may be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right, at the indemnifying party's cost and expense, to
defend, compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
(d) Each Original Shareholder hereby consents to the
non-exclusive jurisdiction of any court in which a Proceeding is brought against
any Indemnified Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Original Shareholders with
respect to such a claim anywhere in the world.
6.9 PROCEDURE FOR INDEMNIFICATION-OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
6.10 NOTICE TO ORIGINAL SHAREHOLDERS. Any notice to all Original
Shareholders pursuant to this Section 6 shall be sent to the attention of the
Sellers' Representative, and notice sent to the Sellers' Representative shall be
deemed sufficient notice to all Original Shareholders under this Section 6.
6.11 ESCROW. Buyer may assert a claim for indemnification under the
Escrow Agreement by notice to Sellers' Representative and the Escrow Agent
specifying in reasonable detail the basis for such claim to the extent then
known by Buyer and the amount to which Buyer is entitled under this Section 6,
all as more fully provided in the Escrow Agreement. Except as provided in
Section 6.6(d), Buyer is authorized to recover from the funds in escrow the
entire amount of, or any portion of, any claim against any Seller without regard
to the amount contributed or deemed to be contributed by such Seller. Sellers
will settle among themselves any right to contribution or indemnity with regard
to amounts paid to Buyer from the escrowed funds. The amount held in escrow, if
and when disbursed to Sellers, shall be treated on an installment sale basis and
shall be taken into income by Sellers in the year in which it is received.
Subject to the provisions of Section 6.6(c), neither the giving of notice of a
claim under the Escrow
42
Agreement nor the failure to give such notice will constitute an election of
remedies or limit Buyer in any manner in the enforcement of any other remedies
that may be available to it.
6.12 TAX BENEFIT. In determining the amount of any Damages under this
Section 6, such amount shall take into account any net tax benefit (federal,
state, local or personal property) actually realized by the indemnified party
from the incurrence or payment by the indemnified party of such Damages. In
connection with the determination of such net tax benefit, (i) tax costs
actually incurred, if any, included in the calculation of Damages or from the
indemnification shall also be taken into account; (ii) the net tax benefit and
the tax costs will be taken into account only to the extent actually realized
with respect to the tax return prepared relative to the tax year in which the
indemnification is due; and (iii) any reduction in the basis of the Shares or
underlying assets as a result of the receipt of payment for Damages shall not be
deemed to be a tax benefit or a tax cost to Buyer. The determination of any tax
benefit or tax cost shall be made by the indemnified party's independent
certified public accountants, whose determination shall be final, binding and
conclusive on all parties.
7. GENERAL PROVISIONS.
7.1 EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including all fees and expenses of
agents, representatives, counsel, and accountants. Subject to the provisions of
Section 2.6(a), the Company may pay the Sellers' out-of-pocket expenses in
connection with this Agreement.
7.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as Buyer determines. Sellers
and Buyer will consult with each other concerning the means by which the
Company's employees, customers, and suppliers and others having dealings with
the Company will be informed of the transactions contemplated hereby, and Buyer
will have the right to be present for any such communication. Notwithstanding
the foregoing, Buyer shall have the right to make such disclosure as it deems
necessary or advisable under the Federal securities laws, in which event Buyer
shall provide Seller with a copy of such disclosure.
7.3 CONFIDENTIALITY. The Confidentiality Agreement dated April 17,
2001, by and between the parties, is hereby declared to be terminated and of no
further force and effect.
7.4 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given (a) when delivered by hand (with written confirmation of receipt), (b)
when sent by telecopier (upon written confirmation of receipt by the recipient),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee (or on the date on which delivery is refused
if the addressee refuses delivery, or on the first date on which delivery is
attempted if delivery is otherwise not possible at the address provided for
notice), if sent by Express Mail or a
43
nationally recognized overnight delivery service which provides evidence of
delivery, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties); provided, that any notice which is
being given to all of the Sellers shall be sent to the attention of the Sellers'
Representative, and any notice sent to the Sellers' Representative shall be
deemed notice to all Sellers:
BUYER: EDO ACQUISITION II, INC.
Attn: Secretary
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No: 000-000-0000
SELLERS' REPRESENTATIVE:
Attn: L. Xxxx Xxxxxxxxxxx
0000 Xxxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Facsimile No.: 000-000-0000
OTHER SELLERS:
As provided in Exhibit A.
7.5 FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
7.6 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
7.7 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of
44
the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
7.8 SELLERS' REPRESENTATIVE. Each Seller irrevocably appoints Xxxx
Xxxxxxxxxxx (the "Sellers' Representative") as his, her or its agent, proxy and
attorney-in-fact for all purposes under this Agreement, and each Seller
authorizes the Sellers' Representative to do any and all of the following for
the Seller and in the Seller's name and stead: (i) to execute, acknowledge, as
appropriate, and deliver to Buyer any certificate, document or agreement
referred to herein or contemplated hereby, including this Agreement, the Shares,
and the Seller's Closing Documents; (ii) to accept, receipt for and deposit any
funds or other amounts owing to the Seller hereunder; (iii) to represent,
negotiate on behalf of and bind the Seller in connection with the determination
of the Adjustment Amount, any negotiations or agreements with Buyer with respect
to the Adjustment Amount, and any presentation to or discussions with the
Accountants with respect thereto; (iv) to execute, acknowledge, as appropriate,
and deliver such modifications and amendments to this Agreement or Sellers'
Closing Documents as the Sellers' Representative shall deem advisable in his
discretion; and (v) to do any and all other acts and things in connection with
this Agreement as Sellers' Representative shall deem advisable in his
discretion. The agency created hereby shall be deemed irrevocable and coupled
with an interest; Buyer shall be entitled to rely upon the powers granted herein
with respect to any matter relating to this Agreement; and any question which
may arise concerning the power or authority of the Sellers' Representative to
act for each Seller shall be interpreted and construed in favor of the authority
of the Sellers' Representative.
7.9 DISCLOSURE LETTER.
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Letter (other than an
exception expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
7.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties except that Buyer may assign any of its rights under this
Agreement to any Related Person of Buyer and further except that any of the
Sellers may sell or assign his rights to receive payment hereunder (but may not
delegate or assign any obligations or liabilities hereunder) to another Seller.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the heirs, personal and legal
representatives, successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of
45
the parties to this Agreement and their heirs, successors and permitted assigns.
7.11 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.12 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
7.13 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
the laws of the State of New York, without regard to conflicts of laws
principals. Buyer and each Seller submit to the jurisdiction of any state or
federal court sitting in the State of New York in any action or proceeding
arising out of or relating to this Agreement and agree that all claims in
respect of the action or proceeding may be heard or determined in any such
court. Buyer and each Seller also agree not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Buyer and each
Seller waive any defense of inconvenient forum to the maintenance of any action
or proceeding so brought. Each Seller appoints the Sellers' Representative as
his or her agent to receive on his or her behalf service or copies of any
Summons and Complaint and any other process that might be served in such action
or proceeding.
7.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER:
EDO ACQUISITION II, INC.
By: __________________________________
Name: ________________________
Title: ______________________
SELLERS:
46
________________________________ ________________________________
XXXX XXXXXXXXXXX a/k/a XXXXX XXXXXX a/k/a
L. XXXX XXXXXXXXXXX a/k/a XXXXX X. XXXXXX
XXXXXX X. XXXXXXXXXXX
________________________________ ________________________________
XXXXXX XXXXXX a/k/a XXXXXX X. XXXXXXXX
XXXXXX X. XXXXXX
________________________________
XXXX XXXXXX
LIST OF EXHIBITS
A Sellers
2.4(a)(ii)(1) Sellers' Releases
2.4(a)(ii)(2) Former Shareholders' Release
2.4(a)(iv)(1)-(5) Noncompetition Agreements
2.4(a)(v) Escrow Agreement
2.4(a)(vi)(1) & (2) Opinions of Counsel for Sellers and Former
Shareholders
THE REGISTRANT WILL FURNISH SUPPLEMENTALLY TO THE COMMISSION ANY OMITTED
SCHEDULE UPON REQUEST.
47
EXHIBIT A
TO
STOCK PURCHASE AGREEMENT
L. Xxxx Xxxxxxxxxxx Xxxxx Xxxxxx
0000 Xxxxxxxxx Xxxx 00000 Xxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000 Xxxxxx, Xxxxxxxx 00000
Facsimile No. 000-000-0000 Facsimile No. 000-000-0000
Xxxxxx Xxxxxx Xxxxxx X. Xxxxxxxx
0000 Xxxxxx Xxxxx 00000 Xxxxxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000 Xxxxxxx Xxxxxxx, Xxxxxxxx 00000-0000
Facsimile No. 000-000-0000 Facsimile No. 000-000-0000
Xxxx Xxxxxx
000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
Facsimile No. 000-000-0000
48
