EXHIBIT 10.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
XXXX-EMCO, INC.
XXXXXXXX X. XXXXX
XXXXXX X. XXXXX
and
XXXXXX ELECTRONICS, INC.
May 7, 2007
TABLE OF CONTENTS
Page No.
ARTICLE I DEFINITIONS...........................................................................ii
ARTICLE II SALE AND TRANSFER OF SHARES; CLOSING DATE..............................................x
2.1 Shares .......................................................................................x
2.2 Purchase Price..................................................................................x
2.3 Final Determination of Purchase Price.........................................................xii
2.4 Closing Date..................................................................................xiv
2.5 Closing Deliveries............................................................................xiv
2.6 Escrow .....................................................................................xvi
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY.................................xvi
3.1 Organization and Good Standing................................................................xvi
3.2 Authority; No Conflict.......................................................................xvii
3.3 Capitalization...............................................................................xvii
3.4 Financial Statements........................................................................xviii
3.5 Books and Records; Officers and Directors of the Company....................................xviii
3.6 Title to Assets; Encumbrances...............................................................xviii
3.7 Intellectual Property Matters.................................................................xix
3.8 Absence of Material Adverse Change.............................................................xx
3.9 No Undisclosed Liabilities.....................................................................xx
3.10 Taxes .....................................................................................xxi
3.11 Employee Benefits...........................................................................xxiii
3.12 Compliance with Legal Requirements; Governmental Authorizations..............................xxiv
3.13 Legal Proceedings.............................................................................xxv
3.14 Absence of Certain Changes and Events........................................................xxvi
3.15 Material Contracts; No Defaults.............................................................xxvii
3.16 Insurance....................................................................................xxix
3.17 Environmental Matters........................................................................xxix
3.18 Brokers or Finders...........................................................................xxxi
3.19 Accounts Receivable..........................................................................xxxi
3.20 Inventory....................................................................................xxxi
3.21 Sufficiency of Assets........................................................................xxxi
3.22 Relations with Customers, Distributors and Suppliers.........................................xxxi
3.23 Related Party Transactions..................................................................xxxii
3.24 Employee and Labor Relations................................................................xxxii
3.25 Stockholders Agreements....................................................................xxxiii
3.26 SystemsLLC.................................................................................xxxiii
3.27 Disclosure.................................................................................xxxiii
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS.........................................xxxiii
4.1 Legal Capacity, Organization and Good Standing.............................................xxxiii
4.2 Authority; No Conflict.....................................................................xxxiii
4.3 Ownership of Shares.........................................................................xxxiv
4.4 Absence of Claims...........................................................................xxxiv
4.5 Brokers or Finders..........................................................................xxxiv
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................................xxxiv
5.1 Organization and Good Standing..............................................................xxxiv
5.2 Authority; No Conflict......................................................................xxxiv
5.3 Investment Intent............................................................................xxxv
5.4 Certain Proceedings..........................................................................xxxv
5.5 Buyer's Investigation........................................................................xxxv
5.6 Brokers or Finders...........................................................................xxxv
ARTICLE VI COVENANTS OF COMPANY PRIOR TO CLOSING DATE......................................................xxxvi
6.1 Access and Investigations...................................................................xxxvi
6.2 Operation of the Company....................................................................xxxvi
6.3 Negative Covenant...........................................................................xxxvi
6.4 Required Approvals..........................................................................xxxvi
6.5 Non-Solicitation...........................................................................xxxvii
6.6 Notice of Developments--Company and Seller................................................xxxviii
6.7 Consents xxxviii
6.8 Stockholders Agreements...................................................................xxxviii
6.9 Termination of 401(k) Plan..................................................................xxxix
ARTICLE VII COVENANTS OF BUYER................................................................................xl
7.1 Approvals of Governmental Bodies...............................................................xl
7.2 WARN Act ......................................................................................xl
7.3 Notice of Developments-Buyer...................................................................xl
7.4 Financing.....................................................................................xli
7.5 SunTrust Obligations..........................................................................xli
ARTICLE VIIA ADDITIONAL COVENANTS............................................................................xli
7A.1 Noncompetition and Nonsolicitation............................................................xli
7A.2 Confidentiality..............................................................................xlii
7A.3 Regulation S-X Compliance...................................................................xliii
ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE..............................................xliii
8.1 Accuracy of Representations.................................................................xliii
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8.2 Covenants...................................................................................xliii
8.3 Consents.................................................................................... xliv
8.4 No Injunctions or Restraints; Illegality.....................................................xliv
8.5 Management Employment Agreements.............................................................xliv
8.6 Closing Deliveries...........................................................................xliv
8.7 Financing....................................................................................xliv
8.8 Opinion......................................................................................xliv
8.9 FIRPTA Affidavit.............................................................................xliv
8.10 Certificates.................................................................................xliv
8.11 338(h)(10) Election...........................................................................xlv
8.12 Termination of Shareholder Agreements.........................................................xlv
8.13 JM Holdings Lease.............................................................................xlv
8.14 Release of Guarantees.........................................................................xlv
8.15 Escrow Agreement..............................................................................xlv
8.16 Joinder of Remaining Stockholders.............................................................xlv
ARTICLE IX CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.............................................xlvi
9.1 Accuracy of Representations..................................................................xlvi
9.2 Covenants....................................................................................xlvi
9.3 No Injunctions or Restraints; Illegality.....................................................xlvi
9.4 Releases.....................................................................................xlvi
ARTICLE X TERMINATION......................................................................................xlvii
10.1 Termination Events..........................................................................xlvii
10.2 Effect of Termination......................................................................xlviii
10.3 Amendment..................................................................................xlviii
ARTICLE XI SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.................xlviii
11.1 Representations and Warranties.............................................................xlviii
11.2 General....................................................................................xlviii
ARTICLE XII INDEMNIFICATION.....................................................................xlix
12.1 Indemnification and Payment of Damages by Sellers............................................xlix
12.2 Indemnification and Payment of Damages by Buyer..............................................xlix
12.3 Indemnitee's Tax Benefits.......................................................................l
12.4 Limitations.....................................................................................l
12.5 Distribution from Escrow Account to Sellers....................................................li
12.6 Claims upon Escrow Account.....................................................................li
12.7 Objections to Claims upon the Escrow Account..................................................lii
12.8 Resolution of Claims upon the Escrow Account..................................................lii
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12.9 Procedures for Indemnification -- Third Party Claims.........................................liii
12.10 Sellers' Remedy...............................................................................liv
12.11 Tax Treatment.................................................................................liv
12.12 Manner of Payment.............................................................................liv
12.13 Matters Related to the Sellers' Committee.....................................................liv
ARTICLE XIII TAX MATTERS...........................................................................lv
13.1 Tax Indemnification............................................................................lv
13.2 Straddle Period...............................................................................lvi
13.3 S Corporation Status..........................................................................lvi
13.4 Tax Periods Ending On or Before the Closing Date..............................................lvi
13.5 IRC ss. 338(h)(10) Election..................................................................lvii
13.6 Purchase Price Allocation....................................................................lvii
13.7 Cooperation on Tax Matters...................................................................lvii
13.8 Tax Sharing Arrangements.....................................................................lvii
13.9 Transfer Taxes..............................................................................lviii
13.10 Audits and Contests Regarding Taxes.........................................................lviii
ARTICLE XIV GENERAL PROVISIONS...................................................................lix
14.1 Expenses......................................................................................lix
14.2 Public Announcements..........................................................................lix
14.3 Confidentiality...............................................................................lix
14.4 Notices........................................................................................lx
14.5 Jurisdiction; Service of Process...............................................................lx
14.6 Further Assurances.............................................................................lx
14.7 Waiver........................................................................................lxi
14.8 Entire Agreement..............................................................................lxi
14.9 Disclosure Schedules..........................................................................lxi
14.10 Assignments, Successors, and No Third-Party Rights............................................lxi
14.11 Severability..................................................................................lxi
14.12 Article and Section Headings, Construction...................................................lxii
14.13 Time of Essence..............................................................................lxii
14.14 Governing Law................................................................................lxii
14.15 Counterparts.................................................................................lxii
14.16 Conflicts....................................................................................lxii
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DISCLOSURE SCHEDULES
Schedule 2.2(a) Purchase Price Calculation
Schedule 2.5(a)(xi) Jurisdictions and Good Standing
Schedule 3.1(a) Executive Officers & Directors; Business
Qualification
Schedule 3.2(b) No Conflicts
Schedule 3.2(c) Company Required Consents
Schedule 3.3(a) Capitalization and Agreements in respect of
Equity Securities
Schedule 3.3(b) Options, Warrants and Similar Rights
Schedule 3.4(a) Financial Statements
Schedule 3.4(b) Deviations from GAAP
Schedule 3.6 Title to Assets; Encumbrances
Schedule 3.7 Intellectual Property
Schedule 3.9 Undisclosed Liabilities
Schedule 3.10 Taxes
Schedule 3.11 Plans and Other Benefit Obligations; Retiree Benefits
Schedule 3.12 Compliance with Legal Requirements
Schedule 3.13 Legal Proceedings
Schedule 3.14 Absence of Certain Changes and Events
Schedule 3.15(a) Material Contracts
Schedule 3.15(b) Restrictive Contracts
Schedule 3.15(c) Validity of Material Contracts
Schedule 3.15(d) No Violation of Material Contracts
Schedule 3.16(a) List of Insurance Policies
Schedule 3.16(b) Validity of Insurance
Schedule 3.17 Environmental Matters
Schedule 3.20 Inventory
Schedule 3.22(a) Customers and Suppliers
Schedule 3.23 Related Party Transactions
Schedule 3.24 Employees
Schedule 4.2 No Conflict of Sellers
Schedule 4.4 Claims
Schedule 5.2(b) No Conflicts of Buyer
Schedule 7A.1(i) 5-Year Non-Competition Geographic Scope
Schedule 7A.1(ii) 3-Year Non-Competition Geographic Scope
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EXHIBITS
Exhibit A Management Employment Agreement
Exhibit B Buyer's Required Consents
Exhibit C Tyson's Corner Lease
Exhibit D Xx Xxxxx Release
Exhibit E Yacoubian Release
Exhibit F Form of Xxxxx & Xxxxxxx L.L.P. Opinion
Exhibit G Form of Escrow Agreement
Exhibit H Example of Working Capital Calculation
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made on May 7, 2007, by
and among XXXX-EMCO, INC., a District of Columbia corporation (the "Company"),
the stockholders of the Company identified on the signature page hereto
(collectively referred to herein as "Sellers" and each individually as a
"Seller"), and XXXXXX ELECTRONICS, INC., a New York corporation ("Buyer").
RECITALS
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the
issued and outstanding shares of Class A voting common stock, $1.00 par value
per share, and Class B non-voting common stock, $1.00 par value per share, of
the Company (collectively, the "Shares"), for the consideration and on the terms
and conditions set forth in this Agreement;
WHEREAS, Buyer intends to enter into the Management Employment Agreement
(as defined below) with XXXX XXXXXXXXX attached as Exhibit A hereto;
WHEREAS, Sellers intend to secure the Consents (as defined below) set forth
on Exhibit B attached hereto and deliver such Consents at the Closing (as
defined below);
WHEREAS, each of the Sellers intends to deliver to Buyer a properly
completed and executed Internal Revenue Service Form 8023;
WHEREAS, the Company and Sellers intend to terminate the certain Amended
and Restated Shareholders Agreement by and among Sellers and the Company, dated
as of June 3, 1999, on the Closing Date (as defined below) on terms and
conditions reasonably acceptable to Buyer and with no further obligation or
liability of the Company or any other party thereto;
WHEREAS, on or before the Closing Date (as defined below), XXXXXXXX XXXXX
intends to contribute all of the equity interests of Security LLC (as defined
below) to the Company;
WHEREAS, the lease between JM Holdings LLC and Buyer relating to the
"Tyson's Corner" premises attached hereto as Exhibit C (the "Tyson's Corner
Lease") is expected to be entered into on the Closing Date;
WHEREAS, the Company and Sellers are expected to receive fully and duly
executed copies of the Xx Xxxxx Release and Yacoubian Release (each, as defined
below) on the Closing Date (as defined below) in the form attached hereto as
Exhibit D and Exhibit E, respectively;
WHEREAS, in connection with the Closing (as defined below) the Board of
Directors of the Company intends to adopt resolutions terminating any and all
benefit plans which are intended to meet the requirements of Section 401(k) of
the IRC (as defined below);
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WHEREAS, on the date hereof, XXXXXXXX X. XXXXX and XXXXXX X. XXXXX, Sellers
who have executed and delivered this Agreement, between them hold 86% of the
equity interests in the Company;
WHEREAS, the owners of the remaining 14% of the equity interests of the
Company (the "Remaining Stockholders") are expected to execute and deliver
joinders to this Agreement as additional Sellers and, as provided below, such
execution and delivery is a condition to the Closing;
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"$100,000 Threshold" has the meaning defined in Section 12.1(b).
"338(h)(10) Election" has the meaning defined in Section 13.5.
"Accounts Receivable" means all of the Company's trade accounts receivable,
notes receivable, employee advances and other miscellaneous receivables.
"Acquisition Proposal" has the meaning defined in Section 6.5(b).
"Actual Company Indebtedness" has the meaning defined in Section 2.3(a)(i).
"Actual Company Unpaid Transaction Expenses" has the meaning defined in
Section 2.3(a)(ii).
"Actual Working Capital" has the meaning defined in Section 2.3(a)(iii).
"Affiliate" shall mean, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by, or is under common control
with such Person. For the purposes of this definition, "control" (including the
terms "controlled by" and "under common control with"), with respect to the
relationship between or among two or more Persons, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by agreement or otherwise.
"Affiliated Group" means any affiliated group within the meaning of IRC
ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Agreement" has the meaning defined in the first paragraph of this
Agreement.
"Balance Sheet" has the meaning defined in Section 3.4.
"Base Purchase Price" has the meaning defined in Section 2.2(a).
"Business Day" means any day other than a Saturday, Sunday or public
holiday under the laws of the State of New York.
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"Buyer" has the meaning defined in the first paragraph of this Agreement.
"Buyer's Accountants" means Buyer's independent, nationally recognized,
certified public accountants.
"Buyer Indemnified Persons" has the meaning defined in Section 12.1(a)
"Buyer Indemnity Claim" has the meaning defined in Section 12.13(b)
"Cap" has the meaning defined in Section 12.4(a).
"Claim" has the meaning defined in Section 12.4.
"Closing" has the meaning defined in Section 2.4
"Closing Date" has the meaning defined in Section 2.4.
"Company" has the meaning defined in the first paragraph of this Agreement.
"Company Intellectual Property Assets" means the Intellectual Property
Assets owned or used by the Company or Security LLC.
"Company Unpaid Transaction Expenses" means all fees, costs and expenses
incurred by or on behalf of the Company in anticipation of, in connection with,
or otherwise related to, the transactions contemplated by this Agreement and/or
any related or alternative transactions (including, without limitation, all of
the fees, expenses and other costs of legal counsel, investment bankers,
brokers, accountants and other representatives and consultants), but in each
case only to the extent such fees, costs and expenses remain unpaid as of, or
are incurred after, the open of business on the Closing Date.
"Company's Accountants" means McGladrey & Xxxxxx LLP, certified public
accountants.
"Confidentiality Agreement" has the meaning defined in Section 14.3.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization), including the
satisfaction of any requirement to pay any fees or other amounts under any
Contract, instrument or arrangement, arising in connection with the transactions
contemplated hereby.
"Contract" means any written (or oral) agreement, contract, license,
sublicense, lease, sublease or binding commitment or arrangement.
"Damages" means any and all losses, Taxes, damages, liabilities,
obligations, costs and expenses, including without limitation, reasonable fees
and disbursements of counsel, sustained or incurred by the applicable Person
after deducting therefrom any insurance proceeds actually recovered (exclusive
of amounts subject to any retrospective payments or premiums) and any indemnity,
contribution or other similar payment actually recovered, net of all expenses
incurred in prosecuting such insurance or other claim, by the Person suffering
the Damages from any third party with respect thereto.
"Disclosure Schedules" means, collectively, those schedules delivered by
the Company and Sellers and attached to this Agreement that set forth the facts
and circumstances that qualify the representations and warranties of the Company
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and Sellers in Articles III and IV of this Agreement, and "Schedule" means any
individual schedule comprising part of the Disclosure Schedules.
"Xx Xxxxx Note" means the promissory note, dated June 3, 1999, in the
original principal amount of $1,650,000 in favor of Xxxxxx X. Xxxxx.
"Xx Xxxxx Release" means the written agreement of Xxxxxx X. Xxxxx, granting
Xxxxxxxx X. Xxxxx, the Company and Buyer an unconditional release from any and
all obligations arising out of the Xx Xxxxx Note.
"Encumbrance" means any mortgage, easement, right of way, charge, claim,
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;
provided, however, that the term "Encumbrance" shall not include (i) statutory
liens for Taxes that are not yet due and payable, (ii) statutory or common law
liens to secure landlords, lessors or renters under leases or rental agreements
confined to the premises rented, (iii) deposits or pledges made in connection
with, or to secure payment of, workers' compensation, unemployment insurance,
old age pension or other social security programs mandated under applicable law,
(iv) statutory or common law liens in favor of carriers, warehousemen, mechanics
and materialmen, to secure claims for labor, materials or supplies and other
like liens and (v) restrictions on transfer of securities imposed by applicable
state and federal securities laws.
"Environmental Claim" has the meaning defined in Section 3.17.
"Environmental Laws" has the meaning defined in Section 3.17.
"Environmental Permits" has the meaning defined in Section 3.17.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"ERISA Affiliate" has the meaning defined in Section 3.11(a).
"Escrow Account" has the meaning defined in Section 2.6.
"Escrow Agent" has the meaning defined in Section 2.6.
"Escrow Agreement" has the meaning defined in Section 2.6.
"Escrow Amount" has the meaning defined in Section 2.6.
"Escrow Claim Notice" has the meaning defined in Section 12.6.
"Estimated Company Indebtedness" has the meaning defined in Section
2.2(c)(i).
"Estimated Company Unpaid Transaction Expenses" has the meaning defined in
Section 2.2(c)(i).
"Estimated Tax Adjustment" has the meaning defined in Section 2.2(c)(i).
"Estimated Working Capital" has the meaning defined in Section 2.2(c)(i).
"Final Purchase Price" has the meaning defined in Section 2.3(c).
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"Financing" has the meaning defined in Section 7.4.
"Financing Delay Fee" has the meaning defined in Section 10.1(d).
"Financing Termination Date" has meaning defined in Section 10.1(d).
"401(k) Plan" has the meaning defined in Section 6.9.
"Fundamental Representations" has the meaning defined in Section 11.1.
"GAAP" means United States generally accepted accounting principles as in
effect at the relevant time.
"Governmental Authorization" means any approval, consent, license, permit,
certification, registration, waiver, or other authorization issued, granted,
given, required, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
"Governmental Body" means any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official,
or entity and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"Hazardous Materials" has the meaning defined in Section 3.17.
"H&H" has the meaning defined in Section 14.16.
"Indebtedness" means at any particular time, without duplication, (i) any
indebtedness for borrowed money or issued in substitution for borrowed money or
exchange of indebtedness for borrowed money (other than the SunTrust Obligations
that are otherwise utilized to calculate the Working Capital or paid at Closing
by Buyer in accordance with Section 2.2(b)(i)), (ii) any indebtedness evidenced
by any note, bond, debenture or other debt security, (iii) any indebtedness for
the deferred purchase price of property or services with respect to which a
Person is liable, contingently or otherwise, as obligor or otherwise (other than
trade payables and other current liabilities incurred in the ordinary course of
business which are not more than three months past due), (iv) any commitment by
which a Person assures a creditor against loss (including, without limitation,
contingent reimbursement obligations with respect to letters of credit and
banker's acceptances), (v) any indebtedness guaranteed in any manner by a Person
(including, without limitation, guarantees in the form of an agreement to
repurchase or reimburse, but excluding, all guarantees relating to the Company
and the Tyson's Corner premises, to the extent they are terminated at the
Closing or SunTrust has agreed to release the Company from such guarantees
within 72 hours after the Closing Date), (vi) any obligations under capitalized
leases with respect to which a Person is liable, contingently or otherwise, as
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obligor, guarantor or otherwise, or with respect to which obligations a Person
assures a creditor against loss, (vii) any indebtedness secured by an
Encumbrance on a Person's assets, and (viii) accrued interest in respect of any
of the obligations described in the foregoing clauses (i) through (vii) of this
definition and all premiums, penalties, charges, fees, expenses and other
amounts which would become due in connection with the payment and satisfaction
in full of such obligations on the Closing Date.
"Independent Accounting Firm" means Xxxxx Xxxxxxx LLP or, if Xxxxx Xxxxxxx
LLP is unable to serve in such capacity, another independent public accounting
firm of national stature mutually agreed upon by the Sellers and Buyer.
"Intellectual Property Assets" means all: (A) patents, patent applications
and patent disclosures; (B) trademarks, service marks, trade dress, trade names,
logos and slogans (and all translations, adaptations, derivations and
combinations of the foregoing) and Internet domain names, together with all
goodwill associated with each of the foregoing; (C) copyrightable works and
copyrights; (D) registrations and applications related to any of the foregoing;
(E) trade secrets, know-how, confidential information and inventions; (F)
computer software (including but not limited to source code, executable code,
data, databases and documentation); and (G) rights of publicity and privacy
relating to the use of the names, likenesses, voices, signatures and
biographical information of real persons.
"Inventory" means all inventory owned, used or held for sale by the Company
and all raw materials, work in process, finished products, shipments in transit,
wrapping and supply and packaging items owned, used or held for use by the
Company.
"IRC" means the Internal Revenue Code of 1986, as amended, or any successor
law, and regulations issued by the IRS pursuant to the IRC or any successor law.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" with respect to the Company, means the actual knowledge of a
particular fact or other matter of XXXXXXXX X. XXXXX, XXXX XXXXXXXXX, XXXX
XXXXXXXXX and XXXXX XXXXXXXX and the knowledge any such individual would
reasonably be expected to have of a particular fact or other matter after a
reasonable inquiry.
"Leased Real Property" has the meaning defined in Section 3.6(a).
"Leases" has the meaning defined in Section 3.6(a).
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, court order, consent, decree, regulation,
license, permit, statute, or treaty.
"Management Employment Agreement" means the Management Employment Agreement
between Buyer and XXXX XXXXXXXXX, attached hereto as Exhibit A.
"Material Adverse Effect (or Change)" means any event, fact, circumstances
or condition (a) that, when such term is used in relation to the Company, (i) is
materially adverse to the business, results of operations, assets or financial
condition of the Company, Security LLC and Systems LLC taken as a whole, or (ii)
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would materially impair or delay the ability of the Company to perform its
obligations hereunder, including the consummation of the transactions
contemplated hereby, or (b) that, when such term is used in relation to Buyer,
(i) is materially adverse to the business, results of operations, assets or
financial condition of Buyer, or (ii) would materially impair or delay the
ability of Buyer to perform its obligations hereunder, including the
consummation of the transactions contemplated hereby, or (c) that, when such
term is used in relation to any Sellers, would materially impair or delay the
ability of such Seller to perform its obligations hereunder, including the
consummation of the transaction contemplated hereby. The term "Material Adverse
Effect or (Change)" shall not include any event, fact, circumstance or condition
(x) to the extent attributable to the execution and delivery of this Agreement
or announcement or pendency of the transactions contemplated hereby, (y)
attributable to general economic changes or changes in the general industry of
the Company or Buyer, acts of terrorism or war; or political or civil
instability, disturbance or unrest, or (z) only with respect to the Company and
Sellers, any event, fact, circumstances or condition to the extent resulting
from an action affirmatively taken by Buyer or their Affiliates after the date
hereof and prior to the Closing.
"Material Contracts" has the meaning defined in Section 3.15(a).
"Multi-Employer Plan" has the meaning defined in Section 3.11(a).
"Non-Defense Election" has the meaning defined in Section 12.9(a).
"Non-Escrow Claim Notice" has the meaning defined in Section 12.9(a).
"Noncompete and Non-Solicitation Period" has the meaning defined in Section
7A.1(a).
"Order" means any judgment, order, decision, writ, injunction, ruling or
decree of, or any settlement under the jurisdiction of, any Governmental Body.
"Organizational Documents" means: (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) the certificate of organization or formation and limited
liability company agreement of a limited liability company, including, without
limitation, an operating agreement; (e) any charter or similar document adopted
or filed in connection with the creation, formation, or organization of a
Person; (f) any trust documents governing the actions of any Person acting in a
fiduciary capacity as trustee of any trust; and (g) any amendment to any of the
foregoing.
"Other Benefit Obligation" has the meaning defined in Section 3.11(a).
"Pension Plan" has the meaning defined in Section 3.11(a).
"Permitted Encumbrances" has the meaning defined in Section 3.6(b).
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, fiduciary acting on behalf of any estate or trust, association,
organization, labor union, or other entity or Governmental Body.
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"Plan" has the meaning defined in Section 3.11(a).
"Post-Closing Statement" has the meaning defined in Section 2.3(a).
"Post-Closing Statement Components" has the meaning defined in clause (iii)
of Section 2.3(a).
"Pre-Closing Statement" has the meaning defined in Section 2.2(c)(i).
"Pre-Closing Tax Period" has the meaning defined in Section 13.1.
"Pre-Closing Tax Return" has the meaning defined in Section 13.4.
"Preliminary Purchase Price" has the meaning defined in Section 2.2(c)(ii).
"Proceeding" means any action, arbitration, audit, claim, grievance,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative or investigative) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Purchase Price Calculation" means the Base Purchase Price less (x) the sum
of (A) the Actual Company Indebtedness and (B) the Actual Company Unpaid
Transaction Expenses, plus (y) the difference (positive or negative) between (A)
the Actual Working Capital minus (B) the Target Working Capital.
"Purchase Rights" has the meaning defined in Section 3.3(b).
"Qualified Plan" has the meaning defined in Section 3.11(a).
"Remaining Stockholders" has the meaning defined in the recitals hereof.
"Representative" means 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.
"Security LLC" means Xxxx-Emco Security LLC, a Maryland limited liability
company.
"Seller Indemnified Persons" has the meaning defined in Section 12.2.
"Sellers" has the meaning defined in the first paragraph of this Agreement.
"Sellers' Defense Election" has the meaning defined in Section 12.9(b).
"Seller's Ownership Percentage" has the meaning defined in Section
2.2(b)(iii).
"Shares" has the meaning defined in the Recital of this Agreement.
"Straddle Period" has the meaning defined in Section 13.2.
"Subsidiary" or "Subsidiaries" means (a) with regard to any Person, any
corporation, partnership, joint venture, limited liability company, trust,
unincorporated organization, association or other legal entity of which a Person
(i) owns, directly or indirectly, greater than 50% of the stock or other equity
interests the holder of which is generally entitled to vote as a general partner
or for the election of the board of directors or other governing body of a
corporation, partnership, joint venture, limited liability company, trust,
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unincorporated organization, association or other legal entity or (ii) has any
arrangement, understanding or agreements entitling such Person to vote as a
general partner or for the election of a majority of the board of directors or
other governing body of a corporation, partnership, joint venture, trust,
unincorporated organization, association or other legal entity and (b) with
regard to the Company, such term shall include any such Person and Systems LLC.
"SunTrust" means SunTrust Bank, a Georgia banking corporation.
"SunTrust Credit Agreement" means that certain Credit Agreement, between
the Company, as borrower, dated as of December 22, 2004 and as further amended,
supplemented or modified.
"SunTrust Obligations" shall mean all indebtedness and obligations owed by
the Company to SunTrust and other lenders arising under or in connection with
the SunTrust Credit Agreement (and any security agreement entered into by the
Company in connection therewith), immediately prior to the Closing Date and to
be paid pursuant to the pay-off letter referenced in Section 2.5(a)(ii).
"Systems LLC" means Xxxx-Emco Systems, LLC, a Maryland limited liability company
and a wholly-owned subsidiary of the Company.
"Target Working Capital" means $400,000.
"Tax" and "Taxes" means (a) all income, gross receipts, franchise,
estimated, excise, transfer, severance, value added, ad valorem, sales, use,
wage, payroll, workmen's compensation, employment, withholding, social security,
alternative minimum, add-on minimum, occupation, and real and personal property
taxes; taxes measured by or imposed on capital; levies, imposts, duties,
(license and legislation fees); other taxes imposed by any Governmental Body,
including assessments in the nature of taxes; interest, penalties, fines,
assessments and deficiencies relating to any tax or taxes; (b) liability for the
payment of any amounts of the type described in clause (a) arising as a result
of being (or ceasing to be) a member of any Affiliated Group (or being included
(or required to be included) in any Tax Return relating thereto, or as a result
of transferee, successor or similar liability); and (c) liability for the
payment of any amounts of the type described in clauses (a) or (b) as a result
of any express or implied obligation to indemnify or otherwise assume or succeed
to the liability of any other Person.
"Tax Claim" means any claim based upon, arising out of or otherwise in
respect of, any inaccuracy in or any breach of any representation, warranty,
covenant or agreement (including any indemnity) of any Seller or the Company
contained in this Agreement related or attributable to Taxes or Tax Returns,
including, without limitation, a breach of any representation or warranty
pursuant to Section 3.10, and any claim for Damages or Taxes pursuant to Section
13.1.
"Tax Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due)
for Taxes.
"Tax Return" means any return (including any information or amended
return), report, statement, schedule, notice, form, or other document or
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information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body (including any schedule attached thereto) 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.
"Taxing Authority" means any Governmental Body (whether federal, state,
local, municipal, foreign or otherwise) responsible for the imposition,
collection or administration of any Tax.
"Third Party" has the meaning defined in Section 6.5(b).
"Third Party Claim" has the meaning defined in Section 12.9(a).
"Title IV Plans" has the meaning defined in Section 3.11(a).
"Transfer Taxes" has the meaning defined in Section 13.9.
"Tyson's Corner Lease" has the meaning described in the recitals of this
Agreement.
"Working Capital" means the difference between (x) the book value of the
Company's current assets as such line items are presented on the Balance Sheet
(including for the avoidance of doubt, cash and cash equivalents) less (y) the
book value of the Company's current liabilities as such line items are presented
on the Balance Sheet (including without limitation, accrued expenses, accrued
compensation and accrued commission & royalty, the current portion of the
Company's Indebtedness, the SunTrust Obligations and any deferred Tax
liabilities) subject to the following adjustments (including, without
limitation, appropriate reserves for accounts receivable, sales returns,
unclaimed property and sales tax) and exclusions: (i) the value of inventory
shall be stated consistent with Section 3.20 hereof; (ii) all employee and
stockholder receivables shall be excluded from current assets and all notes or
other payables to stockholders shall be excluded from liabilities; (iii) Company
Unpaid Transaction Expenses shall be excluded, and (iv) the amount of the
Yacoubian Payment (as defined below), if made prior to the Closing shall be
treated as if it were included in the Company's cash on hand. All items used in
computation of Working Capital shall be determined in accordance with GAAP
applied consistently with the preparation of the Balance Sheet as set forth on
Exhibit H.
"Yacoubian Payment" has the meaning defined in Section 2.2(c)(i).
"Yacoubian Release" means the written agreement of XXXX XXXXXXXXX granting
the Company and Sellers an unconditional release from any and all obligations
whatsoever.
ARTICLE II
SALE AND TRANSFER OF SHARES; CLOSING DATE
2.1 Shares. Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 Purchase Price.
(a) The aggregate purchase price for the Shares and the covenant not to
compete is as set forth on Schedule 2.2(a) (such amount, the "Base Purchase
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Price"), subject to final adjustment as provided in Section 2.3 below and
including all amounts and adjustments contemplated by this Agreement.
(b) The Preliminary Purchase Price (defined in clause (c)(ii) below) shall
be paid in immediately available funds at the Closing as follows:
(i) first, to Xxxxxx X. Xxxxx for the repayment of the Xx Xxxxx Note;
(ii) then, to the Escrow Agent in the Escrow Amount, as provided by
Section 2.6 hereof; and
(iii) then, to each Seller in accordance with its ownership percentage
of the Shares as set forth on Schedule 3.3(a) hereto ("Seller's Ownership
Percentage").
(c)(i) Not later than five Business Days prior to the Closing Date, the
Company shall prepare and deliver to Buyer a statement (the "Pre-Closing
Statement") reflecting the Company's good faith calculations of (A) the
aggregate amount of cash required to pay and discharge in full on the Closing
Date all Indebtedness of the Company (the "Estimated Company Indebtedness"), (B)
the aggregate amount of Company Unpaid Transaction Expenses (the "Estimated
Company Unpaid Transaction Expenses"), (C) the Company's estimated Working
Capital as of the open of business on the Closing Date (the "Estimated Working
Capital"), (D) certain increases to reflect the agreed Tax liabilities (net of
any agreed Tax benefits) (including Tax liabilities resulting from any
additional amount required to be paid hereunder) arising from (x) the payment of
the Xx Xxxxx Note at Closing and the payment to Xxxx Xxxxxxxxx by the Company
immediately prior to Closing in connection with his prior employment agreement
and the Yacoubian Release (the "Yacoubian Payment"), (y) the 338(h)(10) Election
and (z) the noncompetition and nonsolicitation provisions set forth in this
Agreement (such adjustments to be calculated in a manner consistent with
Schedule 2.2(a)) (the "Estimated Tax Adjustment"), (E) the Base Purchase Price
and (F) the resulting Preliminary Purchase Price to be paid at Closing. The
Pre-Closing Statement shall be accompanied by (x) the worksheets and data that
support the Company's calculation of the Estimated Company Indebtedness, the
Estimated Company Unpaid Transaction Expenses, the Estimated Working Capital,
the Estimated Tax Adjustment, Base Purchase Price and the resulting Preliminary
Purchase Price, (y) a certificate from the President and the Chief Financial
Officer of the Company to the effect that the Pre-Closing Statement and the
calculations of the Estimated Company Indebtedness, the Estimated Company Unpaid
Transaction Expenses and the Estimated Working Capital set forth therein have
been (1) prepared in accordance with GAAP consistently applied with the
principles, methodology and assumptions used to prepare the Balance Sheet and
(2) properly derived from the books and records of the Company, and (z) any
other information that Buyer may reasonably request in order to verify the
amounts reflected on the Pre-Closing Statement. If all or any portion of the
Pre-Closing Statement is not reasonably acceptable to Buyer and the parties are
unable to otherwise mutually agree on the disputed amount(s), then, for purposes
of determining the Estimated Company Indebtedness, the Estimated Company Unpaid
Transaction Expenses, the Estimated Working Capital and/or the Estimated Tax
Adjustment hereunder, each such disputed amount shall equal the average of the
Company's good faith estimate of such amount (as set forth on the Pre-Closing
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Statement or the supporting worksheets) and Buyer's good faith estimate of such
amount.
(ii) The "Preliminary Purchase Price" shall be equal to the Base Purchase
Price:
(A) minus the amount of the Estimated Company Indebtedness;
(B) minus the amount of the Estimated Company Unpaid Transaction
Expenses;
(C) plus the amount of the Estimated Tax Adjustment; and
(D) one of the following, as applicable: (x) minus the amount by which
the Estimated Working Capital is less than the Target Working Capital or
(x) plus the amount by which the Estimated Working Capital is greater than
the Target Working Capital.
2.3 Final Determination of Purchase Price.
(a) As promptly as practicable, and in any event not later than 60 days
following the Closing Date, Buyer, at its expense, shall cause Buyer's
Accountants to deliver to Sellers a statement (the "Post-Closing Statement"),
prepared in accordance with GAAP consistently applied with the principles,
methodologies and assumptions used to prepare the Balance Sheet, setting forth
their good faith calculation of (i) the Company's Indebtedness as of immediately
prior to the Closing Date (the "Actual Company Indebtedness"), (ii) the Company
Unpaid Transaction Expenses (the "Actual Company Unpaid Transaction Expenses"),
(iii) the Working Capital as of the opening of business on the Closing Date (the
"Actual Working Capital" and, together with the Actual Company Indebtedness and
the Actual Company Unpaid Transaction Expenses, the "Post-Closing Statement
Components"), (iv) the Estimated Tax Adjustment as of the opening of business on
the Closing Date (such adjustment to be calculated in a manner consistent with
the Estimated Tax Adjustment) (the "Actual Tax Adjustment") and (v) Buyer's
determination of the Purchase Price Calculation based on the Post-Closing
Statement Components as set forth in the Post-Closing Statement. The
Post-Closing Statement shall be accompanied by the worksheets and data that
support Buyer's calculation of the Actual Company Indebtedness, the Actual
Company Unpaid Transaction Expenses, the Actual Working Capital, the Actual Tax
Adjustment and the resulting Buyer's determination of the Purchase Price
Calculation. Upon reasonable notice during normal business hours, at any time
and from time to time, Sellers and the Company's Accountants shall be provided
reasonable access to the pertinent accounting books and records, work papers and
the accounting personnel of Buyer's Accountants and Buyer, and Buyer and Buyer's
Accountants shall have reasonable access to the pertinent accounting books and
records, work papers and the accounting personnel of the Sellers and the
Company's Accountants, during such 60 day period and thereafter until the Final
Purchase Price (as defined in Section 2.3(c) below) has been finally determined
in accordance with this Section 2.3.
(b) If Sellers disagree with Buyer's determination of any of the
Post-Closing Statement Components as set forth in the Post-Closing Statement,
then within 30 days following the Sellers' receipt of the Post-Closing
Statement, Sellers shall notify Buyer in writing of their objection, which shall
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be signed by all Sellers and shall set forth in reasonable detail Sellers'
determination of all Post-Closing Statement Components so disputed by Sellers
and the basis of Sellers' disagreement. A failure by Sellers to so notify Buyer
in writing of their disagreement within such 30 days will constitute acceptance
by Sellers of Buyer's calculation of each of the Post-Closing Statement
Components and the resulting Purchase Price Calculation as the Final Purchase
Price; provided, however, notwithstanding anything to the contrary contained
herein, that Sellers shall not be entitled to dispute the Actual Tax Adjustment
to the extent such adjustment was calculated in a manner consistent with the
Estimated Tax Adjustment, taking into account those assumptions used in
calculating the Estimated Tax Adjustment set forth on Schedule 2.2(a). To the
extent Sellers so notify Buyer in writing of any such disagreements within such
30 days, Buyer and Sellers will negotiate in good faith to resolve such
disagreements during the 15 day period following notice by Sellers to Buyer of
such disagreements; provided that any Post-Closing Statement Components (or
items therein) not specifically disputed by Sellers in such written notice shall
be deemed final and binding on Sellers.
(c) If such disagreement is not resolved within such 15 day period, the
disputed matter(s) shall be promptly submitted to the Independent Accounting
Firm for final resolution. The parties shall instruct the Independent Accounting
Firm to make a final determination of the disputed Post-Closing Statement
Components in accordance with the guidelines set forth in this Agreement and to
render such a determination within 30 days after the retention of the
Independent Accounting Firm by Buyer and Sellers. The Independent Accounting
Firm will be requested to review only the matter(s) in dispute between Buyer and
Sellers and to determine the Post-Closing Statement Components so disputed in
accordance with the provisions of Section 2.3(b). In its determination, the
Independent Accounting Firm shall be entitled to rely on work papers and similar
items generated by the Company's Accountants, Sellers, Buyer's Accountants and
Buyer in respect of their determination of the Post-Closing Statement Components
and shall be instructed not to make any such determinations based on independent
review. The determination of the Independent Accounting Firm shall be final and
binding on the parties with respect to the disputed matters. The fees and
expenses of the Independent Accounting Firm shall be paid by the party hereto
(either Buyer or Sellers) whose determination of the Purchase Price Calculation
was further away from the Final Purchase Price decided upon by the Independent
Accounting Firm. In case the Purchase Price Calculation made by each of Buyer
and Sellers is equally accurate relative to the Final Purchase Price decided
upon by the Independent Accounting Firm, such fees and expenses shall be split
evenly between Buyer and Sellers. Once the Post-Closing Statement Components
become final and binding upon the parties pursuant to Section 2.3(b) above or
pursuant to this Section 2.3(c), the Purchase Price Calculation, determined
pursuant to such final Post-Closing Statement Components shall be known as the
"Final Purchase Price."
(d) Within five days of the determination of the Final Purchase Price in
accordance with this Section 2.3: (i) if the Final Purchase Price is greater
than the Preliminary Purchase Price, then Buyer shall pay the amount of such
difference to Sellers in immediately available funds in accordance with Sellers
written wire instructions, and (ii) if the Preliminary Purchase Price is greater
than the Final Purchase Price, Sellers shall jointly and severally pay the
amount of such difference to Buyer in immediately available funds pursuant to
Buyer's written wire instructions. Notwithstanding anything to the contrary set
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forth herein, Buyer may (but shall not be obligated to) recover any amounts
required to be paid to Buyer pursuant to clause (ii) of this Section 2.3(d) from
the Escrow Account in accordance with the terms of the Escrow Agreement. Sellers
shall execute and deliver to the Escrow Agent any payment direction as may be
required to cause the Escrow Agent to release that portion of the Escrow Amount
necessary to effect the payment of any such adjustment of the Final Purchase
Price to Buyer. Upon any such release of funds from the Escrow Account Sellers
shall promptly, but not later than five days after such release, pay the amount
so released back into the Escrow Account to be held pursuant to the provisions
of the Escrow Agreement.
2.4 Closing Date. The purchase and sale (the "Closing") provided for in
this Agreement will take place at the offices of XXXX XXXXX LLP at 000
Xxxxxxxxx, Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, at 10:00 a.m. (local
time) on the date ("Closing Date") that is two (2) Business Days following the
satisfaction of the closing conditions set forth in Articles VIII and IX (other
than those conditions which by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver thereof), or at such other date, time
and place as the parties may agree. Subject to the provisions of Article X,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.4 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.5 Closing Deliveries. At the Closing:
(a) Sellers or the Company, as appropriate, will have delivered or arrange
to be delivered to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by
duly executed stock powers) for transfer to Buyer;
(ii) a certificate executed by each Seller certifying as to the
satisfaction of the Closing conditions set forth in Sections 8.1 and 8.2 hereof
with respect to such Seller;
(iii) a certificate executed by the Company certifying as to the
satisfaction of the Closing conditions set forth in Sections 8.1 and 8.2 hereof
with respect to the Company;
(iv) (x) a payoff letter signed by SunTrust and the other lenders party to
the SunTrust Credit Agreement and (y) UCC-3 termination statements, each
evidencing that all of the SunTrust Obligations have been fully satisfied; and,
to the extent requested by Buyer, similar payoff letters, evidences of
cancellation and termination statements with respect to all other Indebtedness
of the Company for borrowed money, if any, outstanding as of the Closing Date
(in each case, on terms and conditions reasonably satisfactory to Buyer);
(v) the Escrow Agreement, duly executed by Sellers;
(vi) the Xx Xxxxx Release and the Yacoubian Release;
(vii) written resignations of each of the directors and officers of the
Company;
(viii) each of the Consents identified on Exhibit B;
xiv
(ix) an opinion from Xxxxx & Xxxxxxx L.L.P., counsel for the Company,
addressed to Buyer dated as of the date hereof and in the form attached as
Exhibit F hereto;
(x) a certificate of non-foreign status complying with Treasury Regulation
Section 1.1445-2(b) from the Company;
(xi) (i) a copy of the certificate of incorporation of the Company,
certified by the District of Columbia Superintendent of Corporations; (ii) a
certificate of good standing for the Company by the District of Columbia
Superintendent of Corporations; (iii) certificates of good standing or
qualification for each jurisdiction set forth in Schedule 2.5(a)(xi), with
respect to each of (i)-(iii) above, such certificates to be dated no more than
that number of days prior to the Closing Date agreed upon by Buyer and the
Company; and (iv) a certificate, dated as of the date hereof and executed by the
Secretary of the Company, certifying to (A) the incumbency of all officers
executing this Agreement and/or any document contemplated hereby on behalf of
the Company, (B) the accuracy and completeness of attached copies of the
Company's Organizational Documents, (C) the resolutions of the Board of
Directors of the Company authorizing and approving the execution and delivery of
this Agreement by the Company, the performance of its obligations hereunder, and
the consummation of the transactions contemplated hereby;
(xii) (i) a copy of the certificate of formation of Security LLC certified
by the Maryland Department of Assessments and Taxation; (ii) a copy of the
certificate of formation of Systems, LLC certified by the Maryland Department of
Assessments and Taxation; (iii) certificates of good standing for each of
Systems LLC and Security LLC certified by the Maryland Department of Assessments
and Taxation; with respect to each of (i)-(iii) above, such certificates to be
dated no more than that number of days prior to the Closing Date agreed upon by
Buyer and the Company;
(xiii) A properly completed and executed IRS Form 8023 from each of the
Sellers;
(xiv) the Tyson's Corner Lease duly executed by JM Holdings LLC and the
Company;
(xv) the Escrow Agreement duly executed by Sellers; and
(xvi) a Contribution Agreement pursuant to which Xxxxxxxx X. Xxxxx shall
have contributed all of the equity interests of Security LLC to the Company.
(b) Buyer will deliver to:
(i) SunTrust, for the benefit of SunTrust and the other lenders party to
the SunTrust Credit Agreement, in the amount set forth in the payoff letter
referenced in Section 2.5(a)(iv) hereof as shall fully satisfy the SunTrust
Obligations;
(ii) Xxxxxx X. Xxxxx, the portion of the Preliminary Purchase Price payable
to him in accordance with Section 2.2(b)(i) hereof;
(iii) the Escrow Agent, the Escrow Amount, in accordance with Sections
2.2(b)(ii) and 2.6; and
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(iv) each Seller, the portion of the Preliminary Purchase Price payable to
each Seller, pro-rata to the extent of each Seller's Ownership Percentage;
(v) the Sellers, a certificate executed by the Buyer certifying as to the
satisfaction of the Closing conditions set forth in Sections 9.1 and 9.2 hereof
with respect to the Buyer;
(vi) the Company and Sellers, the Escrow Agreement duly executed by Buyer
and the Escrow Agent; and
(vii) the Company and Sellers, the Xx Xxxxx Release and Yacoubian Release.
2.6 Escrow. At the Closing, Buyer shall withhold an amount equal to
$1,000,000 (One Million Dollars) (the "Escrow Amount") from Sellers on a pro
rata basis, and shall instead deliver the Escrow Amount to JPMorgan Chase Bank,
N.A. (the "Escrow Agent") for deposit into escrow (the "Escrow Account"). The
Escrow Amount shall be held pursuant to the provisions of an escrow agreement
substantially in the form attached hereto as Exhibit G (the "Escrow Agreement")
and shall be available to compensate Buyer for claims pursuant to Section
2.3(d)(ii) hereof and for Damages and Tax Claims as provided in Article VIII and
Section 9.1 hereof. To the extent that there is any portion, or all, of the
Escrow Amount remaining in the Escrow Account which has not been reserved for
claims under the Escrow Agreement on May 31, 2008, such portion, or all, of the
Escrow Amount shall be released to Sellers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
The Company represents and warrants to Buyer as follows:
3.1 Organization and Good Standing.
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the District of Columbia, with full corporate
power and authority to conduct its business as it is now being conducted and to
own or use the properties and assets that it purports to own or use. Schedule
3.1(a) sets forth the current directors and executive officers of Company.
Security LLC is a duly formed Maryland limited liability company, validly
existing under the laws of Maryland, with full limited liability company power
and authority to conduct its business as it is now being conducted. Systems LLC
is a duly formed Maryland limited liability company, validly existing under the
laws of Maryland. Except as set forth in Schedule 3.1(a), each of the Company
and Security LLC is duly qualified and authorized to transact business as a
foreign corporation and is in good standing in every jurisdiction where
required, except where the failure to be qualified or authorized would not
reasonably be expected to have, either individually or in the aggregate, to a
Material Adverse Effect.
(b) The Company owns no direct or indirect ownership interest in any Person
other than owning 100% of the equity interest in Systems LLC.
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(c) The Company has made available to Buyer prior to the execution of this
Agreement, true and complete copies of its Organizational Documents, as in
effect on the date hereof.
3.2 Authority; No Conflict.
(a) The Company has all corporate right, power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement.
Assuming the due authorization, execution and delivery hereof by each other
party hereto, this Agreement constitutes the legal, valid, and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
(b) The execution, delivery and performance of this Agreement will not,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any provision of
the Organizational Documents of the Company;
(ii) except as set forth on Schedule 3.2(b), contravene, conflict with, or
violate in any material respect 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
(iii) except as set forth on Schedule 3.2(b), result in any material
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 material instrument or
Contract.
(c) Except as set forth on Schedule 3.2(c), the Company is not, and will
not be, required to give any notice to or obtain any Consent from any Person in
connection with the execution, delivery or performance of this Agreement.
3.3 Capitalization.
(a) As of the date hereof, (i) the total authorized capital stock of the
Company consists of 10,000 shares, which consist of (A) 200 shares of Class A
voting common stock, $1.00 par value per share, of which 200 shares are issued
and outstanding and (B) 9,800 shares of Class B non-voting common stock, $1.00
par value per share, of which 9,800 shares are issued and outstanding, and (ii)
100% of the ownership interests of Systems LLC are owned by the Company. Each of
the Shares have been duly authorized and are validly issued and are fully paid
and nonassessable and, except as set forth on Schedule 3.3(a) hereto, are not
subject to any Encumbrances, preemptive rights or any rights of first refusal or
rights of rescission. Except as referenced on Schedule 3.3(a), there are no
Contracts for the issuance, sale or transfer of any equity securities or other
securities or interests of the Company. Each of the Shares are held of record by
the Persons with the addresses of record and in the amounts and pro rata
percentages set forth on Schedule 3.3(a).
(b) Schedule 3.3(b) contains a list of equity incentive plans that are
currently in effect. Except for the transactions contemplated by this Agreement
and except as otherwise set forth on Schedule 3.3(b), there are no options,
xvii
warrants, calls, rights, exchangeable or convertible securities, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound (collectively, "Purchase Rights") obligating the Company to
(i) issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any equity or other security or
interest in the Company or (ii) grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such option, warrant, call,
right, exchangeable or convertible securities, commitment or agreement. All
Shares and all issued and outstanding Purchase Rights have been offered, sold
and delivered by the Company in material compliance with applicable federal and
state securities laws.
3.4 Financial Statements. Attached hereto as Schedule 3.4(a) are: the
audited balance sheet of the Company as at December 31 in each of the years 2004
through 2006 (including the notes thereto), and the related audited statements
of income, changes in stockholders' equity, and cash flow for each of the fiscal
years then ended, together with the notes thereto and the report thereon of
McGladrey & Xxxxxx, LLP, independent certified public accountants, (the December
31, 2006 balance sheet together with notes is referred to herein as the "Balance
Sheet"). Such financial statements and notes fairly present in all material
respects the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Company as at the respective dates of
and for the periods referred to in such financial statements, all of which have
been prepared in accordance with GAAP. The financial statements referred to in
this Section 3.4 reflect the consistent application of GAAP throughout the
periods involved, except as disclosed in the notes to such financial statements
or on Schedule 3.4(b).
3.5 Books and Records; Officers and Directors of the Company. (a) None of
the Company, Security LLC and Systems LLC has maintained stock record books or
minute books since their respective inception and (b) the following persons are
duly authorized officers of the Company, holding the office noted herein:
XXXXXXXX XXXXX, Chief Executive Officer, XXXX XXXXXXXXX, President and XXXX
XXXXXXXXX, Chief Financial Officer, Treasurer and Secretary; and the following
persons are the only duly appointed directors of the Company: XXXXXXXX XXXXX and
XXXXXX XXXXX.
3.6 Title to Assets; Encumbrances. (a) Schedule 3.6(a) contains a complete
and accurate list of all leases and other agreements (including all guaranties,
assignments, amendments, extensions and renewals of such leases and other
agreements) (the "Leases") under which the Company or Security LLC holds any
leasehold estates and other rights to use or occupy any land, buildings or other
interest in real property (the "Leased Real Property"). Except as set forth on
Schedule 3.6(a), neither the Company nor Security LLC has subleased or granted
the right to use or occupy any portion of the Leased Real Property to any
Person. The Company or Security LLC, as the case may be, owns or holds a valid
and enforceable leasehold interest in the Leased Real Property under the Leases
free and clear of all Encumbrances other than (i) liens for real estate Taxes
assessed with respect to the Leased Real Property for the current fiscal Tax
year but not yet due and payable; (ii) monetary Encumbrances granted by the
landlord under any lease providing financing to such landlord; and (iii) other
defects in title or Encumbrances that do not materially restrict or impair the
Company's or Security LLC's use of the Leased Real Property in the ordinary
course of business. The Company and Security LLC do not own any land, buildings
or other interest in any real property.
xviii
(b) Except as set forth on Schedule 3.6(b), each of the Company and
Security LLC has good and marketable title to, or, in the case of leased
properties and assets, a valid leasehold interest in, all of its respective
material properties and assets (whether real, personal, or mixed and/or whether
tangible or intangible) used by the Company or Security LLC, located on the
premises of the Company or Security LLC or reflected in the books and records of
the Company, including all of the properties and assets reflected in the Balance
Sheet (except for Inventory sold since the date of the Balance Sheet to
customers in the ordinary course of business). Except as set forth on Schedule
3.6(b), the buildings, plants, structures, equipment and other material assets
owned, leased or licensed by the Company or Security LLC are in good operating
condition and repair, ordinary wear and tear excepted. Except as set forth on
Schedule 3.6(b), all material properties and assets reflected in the Balance
Sheet are free and clear of all Encumbrances except:
(i) the SunTrust Obligations;
(ii) mortgages or security interests incurred in connection with the
purchase of property or assets and shown on the Balance Sheet as securing only
such property or assets so purchased, with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists;
(iii) mortgages or security interests incurred in connection with the
purchase of property or assets after the date of the Balance Sheet (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists;
(iv) liens for real estate Taxes for the current fiscal Tax year not yet
due and payable; and
(v) other defects of title or Encumbrances with respect to the Leased Real
Property which do not, individually or in the aggregate, materially restrict or
impair the Company's use of its Leased Real Property.
(the Encumbrances set forth in (ii)-(v) above are collectively referred to as
the "Permitted Encumbrances").
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3.7 Intellectual Property Matters. Schedule 3.7(a) attached hereto sets
forth a complete and correct list of all of the following that are owned by the
Company and Security LLC: patents; patent applications; trademark applications;
trademark registrations; Internet domain names; service xxxx applications;
service xxxx registrations, copyright registrations and material unregistered
trademarks and service marks. Schedule 3.7(b) sets forth all agreements relating
to the licensing of Intellectual Property Assets by the Company or Security LLC
to a third party or by a third party to the Company or Security LLC, and all
other agreements affecting the Company's or Security LLC's ability to use or
disclose any Intellectual Property Assets, except for licenses for commercially
available off-the-shelf computer software programs, applications or products
purchased or licensed for less than a total cost of $25,000
Except as set forth on Schedule 3.7(c) and except to the extent that the
inaccuracy of any of the following, individually or in the aggregate, would not
have a Material Adverse Effect on the Company:
(a) the Company Intellectual Property Assets owned by the Company or
Security LLC are not subject to any pending, or, to the Knowledge of the
Company, threatened claim, judgment or dispute of any nature;
(b) Neither the Company nor Security LLC has: (i) consented to or otherwise
acquiesced in the use by another Person of the Company's or Security LLC's name
or a name that is substantially similar to the Company's or Security LLC's name;
or (ii) received any notice or claims from any third party alleging that the
Company Intellectual Property Assets or operation of the Company's or Security
LLC's business infringes or misappropriates the Intellectual Property Assets of
such third party;
(c) to the Company's Knowledge, no third party has infringed or
misappropriated any of the Company Intellectual Property Assets and the Company
does not have Knowledge of any facts that indicate a likelihood of any of the
foregoing;
(d) the Company Intellectual Property Assets are subsisting and in full
force and effect and, to the Knowledge of the Company, are valid and
enforceable; and
(e) the Company or Security LLC owns and possesses the entire right, title
and interest in and to all material Intellectual Property Assets created or
developed by, for or under the direction or supervision of the Company or
Security LLC, including any of the foregoing created or developed by any
employee, consultant or contractor, and all Persons who have participated in the
creation or development of any such material Intellectual Property Assets,
including, without limitation, the Intellectual Property Assets set forth on
Schedule 3.7(a), have executed and delivered to the Company a valid and
enforceable agreement (i) providing for the non-disclosure by such Person of any
confidential information of the Company or Security LLC and (ii) providing for
the assignment by such Person to the Company of any material Intellectual
Property Assets arising out of such Person's employment by, engagement by or
contract with the Company, unless or except to the extent that the Company is
entitled to become or elect to become the owner or assignee of such Intellectual
Property Assets by operation of law.
xx
3.8 Absence of Material Adverse Change. Since the date of the Balance
Sheet, there has not been any Material Adverse Change with respect to the
Company.
3.9 No Undisclosed Liabilities. Except as set forth on Schedule 3.9, the
Company has no material liabilities or obligations of any nature (whether
absolute, accrued, contingent, known or otherwise), except for (a) the SunTrust
Obligations, (b) liabilities or obligations reflected in the Balance Sheet, (c)
current liabilities incurred in the ordinary course of business since the date
of the Balance Sheet (none of which is a liability resulting from non-compliance
with any applicable law, the breach of any Contract, the commission of any tort
or act of infringement, or any other Proceeding) and (d) liabilities that do not
or would not reasonably be expected to have a Material Adverse Effect.
3.10 Taxes.
(a) Except where failure to file would not have a Material Adverse Effect,
the Company has duly and timely filed or caused to be filed all Tax Returns
required to have been filed by it pursuant to applicable Legal Requirements. All
such Tax Returns are true, correct and complete in all material respects. Except
as set forth in the Disclosure Schedules, all income, sales and other material
Taxes required to have been paid by the Company (whether or not shown on any Tax
Return) have been paid, except such Taxes, if any, as are listed on Schedule
3.10 and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided on the face of the
Balance Sheet. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return.
(b) There is no dispute or claim concerning any Tax Liability of the
Company either (A) claimed or raised by any Taxing Authority in writing that has
been received by the Company or (B) as to which any of Sellers or the Company
has actual knowledge based upon personal contact with any agent of such Taxing
Authority. Schedule 3.10 lists all federal, state, local, and foreign income Tax
Returns filed with respect to the Company for taxable periods commencing January
1, 2000 and ended on or before December 31, 2006, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are the
subject of audit. No written claim has been received from an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Encumbrances for Taxes
(other than Taxes not yet due and payable) upon any of the assets of the
Company. Sellers and the Company have delivered or made available to Buyer
correct and complete copies of all income Tax Returns, examination reports with
respect to such income Tax Returns, and statements of income Taxes assessed
against or agreed to by the Company since January 1, 2000 which were not shown
on the face of such income Tax Return. The Company has, in all material
respects, withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party, and all Forms W-2 and
1099 required with respect thereto have, in all material respects, been properly
completed and timely filed.
(c) Except as described on Schedule 3.10, the Company has not executed any
agreement waiving any statute of limitations in respect of assessment or
collection of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency that has continuing effect, or granted any power of
xxi
attorney with respect to any matter related to Taxes which is currently in
force. There are no agreements currently in effect between the Company and any
Taxing Authority with respect to the payment in installments of any Tax
Liability after the Closing Date.
(d) The Company has not made any payments and is not obligated to make any
payments in connection with the transactions contemplated by this Agreement that
are or would be excess parachute payments within the meaning of IRC ss. 280G.
The Company has not been a United States real property holding corporation
within the meaning of IRC ss.897(c)(2) during the applicable period specified in
IRC ss.897(c)(1)(A)(ii). The Company is not a party to or bound by any Tax
indemnification, allocation, sharing or similar agreement. The Company (A) has
never been a member of an Affiliated Group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the Company) and
(B) does not have any Tax Liability for the Taxes of any Person (other than the
Company) under Treasury Regulation ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(e) The unpaid Taxes of the Company (A) did not, as of December 31, 2006,
exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the Balance Sheet (rather than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns.
(f) The Company will not be required to include any item of income in, nor
will the Company exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) beginning after the Closing Date as a result
of any change in method of accounting for a taxable period ending on or prior to
the Closing Date under IRC ss.481(c) (or any corresponding or similar provision
of state, local or foreign income Tax law). The Company is not a party to any
"closing agreement" as described in IRC ss.7121 (or any corresponding or similar
provision of state, local or foreign income Tax law) executed on or prior to the
Closing Date that would have continuing effect after the Closing Date. The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of IRC ss.6662. The Company will not be required to
include any item of income in taxable income for any period (or any portion
thereof) ending after the Closing Date as a result of (i) any installment sale
or open transaction disposition made on or prior to the Closing Date or (ii)
prepaid amount received on or prior to the Closing Date.
(g) The Company has had in effect at all times since January 1, 1997 a
valid election under Section 1362(a) of the IRC to be treated as an S
corporation within the meaning of Section 1361 of the IRC, and since that date
has validly been treated in a similar manner for purposes of the income tax laws
of all states in which it has been subject to taxation where analogous treatment
is legally available and will be an S corporation up to and including the
Closing Date. Up to and including the Closing Date, the Company will not take or
allow any action that would result in the termination of the Company's status as
xxii
a validly electing S corporation within the meaning of IRC ss.ss.1361 and 1362
(or any corresponding provisions of state and local law in states and localities
that do not generally subject S corporations to entity-level income Tax). The
Company shall not be liable for any Tax under IRC ss.1374 (or any corresponding
provision of state or local law) in connection with the deemed sale of the
Company's assets caused by the 338(h)(10) Election; and the Company has not, in
the past 10 years, (i) acquired assets from another corporation in a transaction
in which Seller's or Company's tax basis for the acquired assets was determined
in whole or in part by reference to the tax basis of the acquired assets (or any
other property) in the hands of the transferor or (ii) acquired the stock of any
corporation which is a qualified subchapter S subsidiary.
(h) The Company has not distributed stock of another Person, nor has had
its stock distributed by another Person, in a transaction that was purported or
intended to be governed in whole or in part by ss. 355 or ss. 361 of the IRC.
(i) The Company has not engaged in any "listed transaction" for purposes of
Treasury Regulations Sections 1.6011-4(b)(2) or 301.6111-2(b)(2) or any
analogous provision of state, local or foreign law.
3.11 Employee Benefits.
(a) As used in this Section 3.11, the following terms have the meanings set
forth below.
"ERISA Affiliate" means, with respect to the Company, any other Person
that, together with the Company, would be treated as a single employer under IRC
ss. 414.
"Multi-Employer Plan" has the meaning given in ERISA ss. 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices to provide benefits, as compensation or benefits for
services rendered, to present or former directors, employees, or agents, other
than obligations, arrangements, and practices that are Plans including, without
limitation, employment agreements, severance policies or agreements, executive
compensation arrangements, incentive arrangements, sick leave, vacation pay,
salary continuation, consulting or other compensation arrangements, workers'
compensation, bonus plans, stock option, stock grant or stock purchase plans,
medical insurance, life insurance, tuition reimbursement programs or scholarship
programs, any plans subject to section 125 of the Code, and any plans providing
benefits or payments in the event of a change of ownership or control.
"Pension Plan" has the meaning given in ERISA ss. 3(2)(A).
"Plan" has the meaning given in ERISA ss. 3(3).
"Qualified Plan" means any Pension Plan that meets or purports to meet the
requirements of IRC ss. 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV of
ERISA, 29 U.S.C. ss. 1301 et seq., other than Multi-Employer Plans.
(b) Schedule 3.11 contains a complete and accurate list of all Plans and
material Other Benefit Obligations sponsored, maintained or contributed to by
the Company on behalf of or for the benefit of its current or former employees,
xxiii
directors or independent contractors, or with respect to which the Company has
or may have any liability. The Company has delivered or made available to Buyer
a true and correct copy of the governing plan document for each Plan (including
all amendments thereto), its summary plan description and its most recent Form
5500 with all schedules and attachments (if applicable), and any trust
agreement, insurance contract or other document under which Plan assets are held
and invested or benefits provided. The Company has further delivered or made
available to Buyer the material Other Benefit Obligations, and a copy of any
document furnished to employees which summarizes or describes each material
Other Benefit Obligation. Each Plan and each Other Benefit Obligation complies
in form and operation in all material respects with its terms and the applicable
requirements of ERISA, the IRC and other applicable Legal Requirements. Neither
the Company nor any ERISA Affiliate has at any time during the six years
preceding this Agreement and through the date hereof sponsored, maintained,
contributed to or been obligated to contribute to any Title IV Plan or
Multi-Employer Plan, and no facts or circumstances exist or are expected that
could result in material liability or potential material liability to the
Company nor any ERISA Affiliate pursuant to Title IV or Section 302 of ERISA or
IRC ss. 412. Neither the Company or, to the Knowledge of the Company, any
fiduciary with respect to any Plan has engaged in any nonexempt prohibited
transaction under ERISA ss. 406, or incurred any liability for breach of
fiduciary duty or any other failure to comply with any Legal Requirement in
connection with the administration or investment of assets of any Plan. No
action, suit, Proceeding, hearing, audit or investigation with respect to the
administration or investment of assets of any Plan or Other Benefit Obligation
(other than routine claims for benefits) is pending or, to the Knowledge of the
Company, threatened. Except as otherwise disclosed on Schedule 3.11, the Company
does not provide health or other welfare benefits for any retired or former
employee and is not obligated to provide health or welfare benefits to any
active employee following such employee's retirement or other termination of
service (other than "COBRA" continuation coverage required under ERISA xx.xx.
601 et seq. and IRC ss. 4980B). All contributions (including employer and
employee contributions) or premium payments with respect to each Plan or Other
Benefit Obligation for all periods ending on or prior to the Closing Date have
been made or, to the extent not required to be made, have been properly accrued.
Except as otherwise disclosed on Schedule 3.11, neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
accelerate the time of payment or vesting, result in any payment or funding of
any benefits, or increase the amount payable or benefits provided under any Plan
or Other Benefit Obligation. Each Company Plan or Other Benefit Obligation that
is a "nonqualified deferred compensation plan" (as defined in Section 409A(d)(1)
of the Code) has been operated since January 1, 2005 in good faith compliance
with Section 409A and the guidance under Section 409A of the Code. No Company
Plan or Other Benefit Obligation that is a "nonqualified deferred compensation
plan" has been materially modified after October 3, 2004. No event has occurred
that would be treated by Code Section 409A(b) as a transfer of property for
purposes of Code Section 83.
(c) All persons classified by the Company as independent contractors
satisfy and have at all times satisfied the requirements of applicable law to be
so classified; the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so; and the Company has no obligations to
provide benefits with respect to such persons under Seller Plans or otherwise.
xxiv
No individuals are currently providing, or have ever provided, services to the
Company pursuant to a leasing agreement or similar type of arrangement, nor has
the Company entered into any arrangement whereby services will be provided by
such individuals.
3.12 Compliance with Legal Requirements; Governmental Authorizations.
(a) Except as set forth on Schedule 3.12 or except where any failure to
comply, violation or obligation would not have a Material Adverse Effect on the
Company:
(i) the Company is in material 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;
(ii) no event has occurred or circumstance exists that (with or without
notice or lapse of time) 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; and
(iii) the Company has not received any written notice or communication from
any Governmental Body regarding: (A) any actual, alleged or potential violation
of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged
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.
(b) Except as set forth on Schedule 3.12, the Company is in possession of,
and is in material compliance with, all the Governmental Authorizations
necessary to conduct the Company's business as presently conducted without any
material violation of any Legal Requirement. Except as set forth on Schedule
3.12 or except where any failure to comply, violation or other event or
circumstances would not have a Material Adverse Effect on the Company:
(i) 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
material violation of or a failure to comply with any term or requirement of any
such material Governmental Authorization, or (B) result directly or indirectly
in the revocation, withdrawal, suspension, cancellation, modification, or
termination of, any such material Governmental Authorization; and
(ii) the Company has not received any written notice or communication from
any Governmental Body regarding: (A) any actual, alleged or potential violation
of or failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual or threatened revocation, withdrawal,
suspension, cancellation, modification or termination of any material
Governmental Authorization; and
(iii) all applications required to have been filed for the renewal of any
material Governmental Authorizations listed or required to be listed on Schedule
3.12 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..
xxv
3.13 Legal Proceedings. Except as set forth on Schedule 3.13, there is no
pending Proceeding:
(a) that has been commenced by or against the Company or any of the
material assets owned or used by the Company; or
(b) that challenges, or that may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, any of the transactions
contemplated by this Agreement.
To the Knowledge of the Company, no such Proceeding has been threatened. There
is no judgment, decree, injunction, rule or order of any Governmental Body or
arbitrator outstanding against the Company that materially restricts, impedes,
limits or adversely affects the business or operations of the Company.
3.14 Absence of Certain Changes and Events. Except as set forth on Schedule
3.14, since the date of the Balance Sheet and, to the extent not fully reflected
in the Balance Sheet, since the date of the Balance Sheet, the Company has
conducted its business only in the ordinary course of business consistent with
past practice, and there has not been any:
(a) change in the Company's authorized or issued capital stock or the
ownership thereof; grant of any stock option or right to purchase shares of
capital stock 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;
(b) amendment to the Organizational Documents of the Company;
(c) acquisition of any stock or business of, or merger or consolidation
with, another Person, or any action with respect to liquidating, dissolving,
recapitalizing, reorganizing or otherwise winding up the Company's business;
(d) payment or increase by the Company of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or employee (except, with
respect to non-executive employees, in the ordinary course of business
consistent with past practice) or entry into any new, or material amendment of
any existing, employment, consulting, independent contractor, severance, change
of control or similar Contract;
(e) adoption of any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan;
(f) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, which has had, or would reasonably
be expected to have, a Material Adverse Effect on the Company;
(g) sale (other than sales of Inventory in the ordinary course of
business), lease, license, distribution or other disposition of any material
asset(s) or property of the Company, or any waiver, release, transfer or
assignment of any right of material value, or any mortgage, pledge, or
imposition of any lien or other Encumbrance on any material asset(s) or property
of the Company except as noted on Schedule 3.6 or except as explicitly permitted
under Section 6.2 or required under any other provision of this Agreement;
xxvi
(h) entry into any Contract or other agreement providing for payments by
the Company in an aggregate amount exceeding $50,000 that is not terminable by
the Company, without penalty, upon sixty (60) days notice;
(i) any capital expenditure in excess of $50,000;
(j) change in any annual accounting period or accounting methods used by
the Company;
(k) any modification, termination or amendment to a Material Contract or
waiver of any right or claim thereunder;
(l) loss of use of any material Company Intellectual Property Assets; or
(m) entry into any Contract, whether oral or written, by the Company to do
any of the foregoing.
3.15 Material Contracts; No Defaults.
(a) Schedule 3.15(a) contains a complete and accurate list, and the Company
has delivered or made available to Buyer prior to the execution of this
Agreement true and complete copies, of the following Contracts (together with
the Leases listed on Schedule 3.6 and the Contracts listed on Schedule
3.7(b))(collectively, the "Material Contracts"):
(i) each Contract that involves performance of services or the sale or
delivery of goods or materials by the Company of an amount or value in excess of
$50,000 either (A) during fiscal 2006 or (B) reasonably expected for fiscal 2007
or any fiscal year thereafter, except for purchase orders for components,
installation services or finished goods in the ordinary course of business,
consistent with past practices;
(ii) each Contract that involves performance of service or delivery of
goods or materials to the Company of any amount or value in excess of $50,000
either (A) during fiscal 2006 or (B) reasonably expected for fiscal 2007 or any
fiscal year thereafter, except for purchase orders for components or finished
goods in the ordinary course of business, consistent with past practices;
(iii) each Contract entered into by the Company outside the ordinary course
of business involving, or reasonably expected to involve, expenditures or
receipts of the Company in excess of $50,000;
(iv) each Lease, rental or occupancy agreement, license, installment or
conditional sale agreement, or other 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/or
conditional sales agreements involving aggregate payments of less than $25,000);
(v) each joint venture, partnership, and other similar Contract (however
named) involving (or reasonably expected to involve) a sharing of profits,
losses, costs, or liabilities by the Company with any other Person ;
xxvii
(vi) each Contract containing covenants that restrict the business activity
of the Company or limit the freedom of the Company to engage in any line of
business or to compete with any Person;
(vii) each Contract for capital expenditures in excess of $50,000;
(viii) each indenture, mortgage, trust, deed, promissory note, loan
agreement, security agreement, guarantee or other agreement or commitment for
Indebtedness;
(ix) any indemnification agreements or other arrangements under which the
Company is obligated to indemnify any Person;
(x) any settlement, conciliation or similar agreement pursuant to which the
Company is required to pay consideration in excess of $50,000;
(xi) each Contract between the Company and any of its distributors that
involved the sale of goods by the Company to such distributor of an amount in
excess of $50,000 either (A) during fiscal 2006 or (B) reasonably expected for
fiscal 2007;
(xii) each Contract with any officer, director, employee, consultant or
independent contractor of the Company involving total compensation in excess of
$50,000 annually and has noted any amounts which change such Contracts
historical compensation level or pattern;
(xiii) each Contract providing for payments in an aggregate amount
exceeding $50,000 that is not terminable by the Company, without penalty, upon
sixty days' notice; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth on Schedule 3.15(b):
(i) no Seller has or may acquire any rights under, and no Seller 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, 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 on Schedule 3.15(c), each Material Contract
identified or required to be identified on Schedule 3.15(a) is in full force and
effect, is a valid and binding obligation of the Company and, to the Knowledge
of the Company, enforceable in accordance with its terms.
(d) Except as set forth on Schedule 3.15(d):
(i) the Company is in material compliance with all applicable terms and
requirements of each Material Contract;
xxviii
(ii) to the Knowledge of the Company, each other party to each Material
Contract is in material compliance with all applicable terms and requirements of
such Material Contract;
(iii) to the Knowledge of the Company, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may result in
a material violation or breach of, or give the Company or other party thereto
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 Material
Contract; and
(iv) the Company has not given to or received from any other Person, at any
time since the date of the Balance Sheet, any written notice or communication
regarding any actual, alleged, possible, or potential material violation or
breach of, or default under, any Material Contract.
3.16 Insurance.
(a) Schedule 3.16(a) contains a complete and accurate list of the
following:
(i) all material policies of insurance to which the Company is a party or
under which the Company, or any officer or director of the Company, is or has
been covered at any time within the two years preceding the date of this
Agreement; and
(ii) all pending applications for material policies of insurance.
To the Knowledge of the Company, the policies referred to in clause (i)
above provide coverage as is required by any applicable material Legal
Requirement or pursuant to any Contract to which the Company is party.
(b) Except as set forth on Schedule 3.16(b):
(i) Since January 1, 2005, the Company has not received: (A) any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other indication that any
material insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any material insurance policy is not willing or
able to perform its obligations thereunder.
(ii) The Company has paid all premiums due (or has accrued for such on its
financial statements), and has otherwise performed all of its obligations, under
each policy to which the Company is a party or that provides coverage to the
Company or any director thereof.
3.17 Environmental Matters. The representations and warranties set forth in
this Section 3.17 shall constitute the Company's sole and exclusive
representations and warranties with respect to Environmental Laws, Hazardous
Materials and other environmental matters. Except as set forth on Schedule 3.17,
and except to the extent that the inaccuracy of any of the following,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company:
(a) the Company holds and is in compliance with all Environmental Permits,
and is and has otherwise been in compliance with all applicable Environmental
xxix
Laws and, to the Company's Knowledge, there is no condition that is reasonably
likely to prevent or materially interfere with compliance by the Company with
Environmental Laws;
(b) no modification, revocation, reissuance, alteration, transfer or
amendment of any Environmental Permit or any review by, or approval of, any
third party of any Environmental Permit pursuant to any Environmental Law is
required in connection with the execution or delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby or the
operation of the business of the Company on the date of the Closing Date;
(c) the Company has not received any Environmental Claim, nor, to the
Knowledge of the Company, has any Environmental Claim been threatened against
the Company; and
(d) the Company has not entered into, agreed to and is not subject to any
outstanding judgment, decree, order or consent arrangement with any Governmental
Body under any Environmental Laws, including without limitation those relating
to compliance with any Environmental Laws or to the investigation, cleanup,
remediation or removal of Hazardous Materials.
(e) To the Company's Knowledge, (i) the Company has not treated, stored,
disposed of, arranged for or permitted the disposal of, transported or released,
or exposed any Person to Hazardous Materials such that the Company could
reasonably be expected to be liable for any material penalties, corrective
action, investigation or cleanup, or damages or injuries to persons, property or
the environment, under any Environmental Law; and (ii) there are no Hazardous
Materials present in soils, surface water or groundwater at or in any facility
or property owned, leased or operated by the Company that could reasonably be
expected to give rise to material liabilities for fines, penalties, corrective
action, investigation or cleanup, or damages or injuries to persons, property or
the environment under Environmental Laws.
For purposes of this Agreement, the terms below shall have the following
meanings:
"Environmental Claim" means any written complaint, notice, claim, demand,
action, suit or judicial, administrative or arbitral proceeding by any Person to
the Company asserting liability or potential liability (including without
limitation, liability or potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating to, based on or
resulting from: (i) the presence, discharge, emission, release or threatened
release of any Hazardous Materials at any location, (ii) circumstances forming
the basis of any violation or alleged violation of any Environmental Laws or
Environmental Permits, or (iii) otherwise relating to obligations or liabilities
under any Environmental Law.
"Environmental Laws" means all applicable federal, state and local
statutes, rules, regulations, ordinances, orders and decrees, and all common
law, in each case relating in any manner to pollution or protection of the
environment or the exposure of Persons, property or the environment to
pollutants, contaminants, hazardous or toxic substances, wastes, noise or odors,
to the extent and in the form that such exist at the date hereof.
xxx
"Environmental Permits" means all permits, licenses, registrations,
exemptions and other Governmental Authorizations required under Environmental
Laws for the Company to conduct its operations as presently conducted.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants and all other materials
and substances, including but not limited to radiologically contaminated
materials regulated pursuant to any Environmental Laws or that could result in
liability under any Environmental Laws.
3.18 Brokers or Finders. The Company has 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 or the
transactions contemplated hereby.
3.19 Accounts Receivable. All Accounts Receivable of the Company are
reflected properly on its books and records, are valid receivables and, to the
Knowledge of the Company, are collectible in accordance with their terms at
their recorded amounts, subject only to the reserve for doubtful accounts set
forth in the Balance Sheet (rather than in any notes thereto) as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company.
3.20 Inventory. Schedule 3.20 sets forth the Inventory of the Company and
its respective carrying values as of the date hereof, all of which Inventory is
useable and saleable in the ordinary course, subject to the reserve maintained
for shrinkage and damage. Except as set forth in Schedule 3.20, the Inventory is
reflected on the Balance Sheet and will be reflected in the Pre-Closing
Statement at the value set forth on Schedule 3.20.
3.21 Sufficiency of Assets. The Company owns, or has a valid leasehold
interest in or license for, in each case free and clear of all Encumbrances
except for Permitted Encumbrances, all assets materially necessary for the
conduct of its business as presently conducted consistent with past practices.
3.22 Relationships with Customers, Distributors and Suppliers.
(a) Attached hereto as Schedule 3.22(a) is a true and accurate list of the
names of the greater of (x) the top twenty suppliers of the Company or (y) the
suppliers representing greater than 50% of the Company's aggregate purchases (in
each case by dollar volume of purchases from such suppliers), for the 2004,
2005, 2006 and year-to-date 2007 fiscal years and, for each such supplier, the
volume of purchases from such supplier for each such fiscal year. As of the date
hereof, the Company has not received any indication from any material customer
or distributor of the Company (including those listed on Schedule 3.22(a)) to
the effect that, and, to the Company's Knowledge, the Company has no reason to
believe that, any material customer or distributor will stop, materially
decrease the rate of, or materially change the terms (whether related to
payment, price or otherwise) with respect to, buying materials, products or
services from the Company (whether as a result of the consummation of the
transactions contemplated hereby or otherwise). As of the date hereof, the
Company has not received any indication from any of its material suppliers
(including those listed on Schedule 3.22(a)) to the effect that, and, to the
Company's Knowledge, the Company has no reason to believe that, such supplier
xxxi
will stop, materially decrease the rate of, or materially change the terms
(whether related to payment, price or otherwise) with respect to, supplying
materials, products or services to the Company (whether as a result of the
consummation of the transactions contemplated hereby or otherwise).
(b) The Company has not intentionally induced, encouraged or attempted to
induce or encourage any customer or distributor of the Company to purchase or
maintain any inventory of the Company's products at a level in excess of the
level of inventory historically purchased or maintained by such customer or
distributor in such manner that, after the Closing Date, would reasonably be
expected to result in decreased orders or increased returns from such customers
or distributors as compared to the normal historical orders or returns of such
customer or distributor.
3.23 Related Party Transactions. Except as set forth in Schedule 3.23 and
except for amounts (i) due as salaries and bonuses in the ordinary course of
business consistent with past practice, (ii) in reimbursement of ordinary
expenses in the ordinary course of business consistent with past practice and
(iii) not in excess of $50,000 during any calendar year, no officer, director,
stockholder, employee or Affiliate of the Company, including Sellers and their
respective Affiliates, or to the Knowledge of the Company, any individual
related by blood, marriage or adoption to any such individual or any entity in
which any such Person or individual owns any beneficial interest, is a party to
any Contract with the Company or has any interest in any property or assets used
by the Company (including any Company Intellectual Property Assets).
3.24 Employee and Labor Relations. (a) Schedule 3.24 hereto correctly sets
forth the name and current annual salary of each of the Company's employees
receiving more than $50,000 in total annual compensation (including, without
limitation, any bonus compensation payments) and whether any employees are
absent from active employment, including, but not limited to, leave of absence
or disability.
(b) Schedule 3.24 sets forth the bonuses paid and reasonably expected to be
paid to the Company's officers and employees for the fiscal year ended December
31, 2005 and the fiscal year ending December 31, 2006.
(c) Except as set forth on Schedule 3.24(c):
(i) the Company is not party to any collective bargaining agreement
applicable to Persons employed by the Company;
(ii) to the Company's Knowledge, no executive, key employee or group of
employees of the Company has any plans to terminate employment with the Company;
(iii) the Company has complied in all material respects with all laws
relating to the employment of labor (including but not limited to provisions
thereof relating to wages, hours, equal opportunity, collective bargaining,
immigration, layoffs and the payment of social security and other Taxes); and
(iv) to the Company's Knowledge, it does not have any material labor
relations problems (including any union organization or decertification
activities, threatened or actual strikes or work stoppages or material employee
grievances).
xxxii
3.25 Stockholders Agreements. Sellers and the Company have terminated that
certain Amended and Restated Shareholders Agreement by and among Sellers and the
Company, dated as of June 3, 1999 and with no further obligation or liability of
the Company or any other party thereto.
3.26 Systems LLC Systems LLC is a dormant subsidiary of the Company and has
conducted no operations for the period of six (6) years prior to the date
hereof.
3.27 Disclosure. No representation or warranty of the Company in this
Agreement and no statement in the Company's Disclosure Schedules omits to state
a material fact necessary to make the statements herein or therein, in light of
the circumstances in which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller represents and warrants severally and not jointly to Buyer
on his, her or its own behalf and only with respect to himself, herself and
itself as follows:
4.1 Legal Capacity, Organization and Good Standing. Each Seller that is a
natural person has the legal capacity and all requisite power and authority to
execute and deliver this Agreement, to comply with the provisions hereof and to
carry out the transactions contemplated hereby. Each Seller that is not a
natural person, including any corporation, limited partnership or other entity,
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of such entity's incorporation or formation and has all requisite
power and authority to execute and deliver this Agreement and to comply with the
provisions hereof.
4.2 Authority; No Conflict.
(a) Assuming the due authorization, execution and delivery of this
Agreement by each other party hereto, this Agreement constitutes the legal,
valid, and binding obligation of such Seller, enforceable against such Seller in
accordance with its terms.
(b) Except as set forth on Schedule 4.2, neither the execution and delivery
of this Agreement by any Seller nor the consummation or performance of any of
the transactions contemplated by this Agreement by a Seller will give any Person
the right to prevent, delay, or otherwise materially interfere with any of the
transactions contemplated by this Agreement pursuant to:
(i) any provision of any Seller's Organizational Documents;
(ii) any resolution or consent adopted by the trustee, board of trustees,
board of directors or stockholders of any Seller;
(iii) any Legal Requirement to which a Seller may be subject; or
(iv) any material Contract to which a Seller is a party or by which a
Seller may be bound.
4.3 Ownership of Shares. Each Seller is the record and beneficial owner and
holder of the Shares set forth opposite its name on Schedule 3.3(a). Each Seller
xxxiii
represents that there are no restrictions that would prevent the transfer of its
Shares to Buyer, free and clear of all Encumbrances except for restrictions
imposed under any federal or state securities law.
4.4 Absence of Claims. Except as set forth on Schedule 4.4, such Seller has
no commitment, action, debt, claim, counterclaim, suit, cause of action or
similar right, at law or in equity, contingent or otherwise, against the Company
or the officers, directors, employees, stockholders, Affiliates, predecessors,
successors or assigns of any of them, including, but not limited to, any claims
which relate to or arise out of such Seller's prior relationship with the
Company or his, her or its rights or status as a stockholder, officer, director
or employee of the Company; provided that nothing in this Section 4.4 shall be
deemed a waiver by any Seller of such Seller's right to indemnification under
the Company's Organizational Documents, with respect to such Seller's position
as an officer, director, employee, agent or representative of the Company.
4.5 Brokers or Finders. No Seller has incurred any obligation or liability,
contingent or otherwise, for brokerage, finders' fees, agents' commissions or
other similar payment(s) in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of New York.
5.2 Authority; No Conflict.
(a) Buyer has all corporate right, power, and authority to execute and
deliver this Agreement and the other documents to be executed in connection
herewith, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery by
Buyer of this Agreement and the other documents to be executed in connection
herewith and the performance of its obligations hereunder and thereunder have
been duly and validly authorized by the board of directors of Buyer. No other
corporate proceedings on the part of Buyer is necessary to authorize the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Buyer and, assuming due authorization, execution
and delivery hereof by the other parties hereto, constitutes the legal, valid,
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms.
(b) as set forth in Schedule 5.2(b), neither the execution and delivery of
this Agreement by Buyer nor the consummation or performance of any of the
transactions contemplated by this Agreement by Buyer will give any Person the
right to prevent, delay, or otherwise materially interfere with any of the
transactions contemplated by this Agreement pursuant to:
(i) any provision of Buyer's Organizational Documents, as applicable;
xxxiv
(ii) any resolution adopted by the board of directors or the stockholders
of Buyer;
(iii) any Legal Requirement to which Buyer may be subject; or
(iv) any material Contract to which Buyer is a party or by which Buyer may
be bound.
Except as set forth in Schedule 5.2(b), Buyer is not, nor will it be, required
to obtain any Consent from, observe any waiting period imposed by, or make any
filing with or notification to, any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
transactions contemplated in this Agreement.
(c) Except as expressly set forth in this Agreement or in the attachments
hereto, and except for the Confidentiality Agreement, Buyer is not a party to
any other agreement or understanding with any of Sellers, the Company or any of
the Company's employees.
5.3 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(a)(11)
of the Securities Act of 1933, as amended.
5.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, the
performance of this Agreement or any of the transactions contemplated herein.
Buyer hereby acknowledges that, to its knowledge, no such Proceeding has been
threatened.
5.5 Buyer's Investigation. Buyer hereby acknowledges that, to its
knowledge, Buyer and its Representatives have been given access to the premises,
properties, books, Contracts and records of the Company and have been furnished
with all additional financial and operational data and other information
concerning the Company's assets as Buyer and its Representatives have requested
in connection with Buyer's determination to enter into this Agreement. Buyer
further acknowledges that it is sophisticated in all aspects of the general
industry of the Company and has sufficient knowledge and expertise to evaluate
an investment in the Company.
5.6 Brokers or Finders. Buyer and its officers and 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 and will indemnify and hold Sellers harmless from any such payment
alleged to be due from Sellers by or through Buyer as a result of the action of
Buyer or its officers or agents.
ARTICLE VI
COVENANTS OF COMPANY AND THE SELLERS
6.1 Access and Investigations. Between the date of this Agreement and the
Closing Date, the Company shall, upon reasonable notice and during normal
business hours: (a) afford Buyer and its Representatives reasonable access to
the Company's personnel, customers, suppliers, licensors, properties, contracts,
books and records, and other documents and data, (b) furnish or make available
xxxv
to Buyer and Buyer's Representatives copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish or make available to Buyer and Buyer's Representatives such
additional financial, operating, and other data and information as Buyer may
reasonably request so long as such request does not unreasonably interfere with
the operation of the Company's business in the ordinary course.
6.2 Operation of the Company. Except as otherwise expressly permitted or
contemplated by this Agreement, between the date of this Agreement and the
Closing Date, unless Buyer shall consent in writing in advance, which consent
shall not be unreasonably withheld or delayed, the Company shall:
(a) conduct the business of the Company only in the ordinary course of
business consistent with past practice; provided, however, that neither this
clause (a) nor any other provision of this Agreement shall be construed to
prohibit the Company from paying any dividends or making any distributions to
Sellers on or prior to the Closing; and
(b) not amend any of its Organizational Documents; not issue any shares of
its stock or rights to acquire shares of its stock; and
(c) use commercially reasonable efforts to maintain the goodwill of the
Company's suppliers, customers, distributors, licensors and employees.
6.3 Negative Covenant. Except as otherwise expressly permitted or
contemplated by this Agreement, between the date of this Agreement and the
Closing Date, the Company shall not, without the prior written consent of Buyer,
which consent will not be unreasonably withheld or delayed, take any affirmative
action, or fail to take any reasonable action within its control, as a result of
which any of the changes or events listed in Section 3.14 would or would
reasonably be expected to occur.
6.4 Reasonable Efforts; Required Approvals.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company and Sellers shall use its commercially reasonable
efforts to take, or cause to be taken, all actions, and do, or cause to be done,
and to assist and cooperate with Buyer in doing, all things necessary, proper or
advisable by applicable Legal Requirements to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by this
Agreement. As promptly as practicable after the date of this Agreement, each of
the Company and Sellers shall use its commercially reasonable efforts to make
all filings required by Legal Requirements to be made by them in order to
consummate the transactions contemplated herein. Between the date of this
Agreement and the Closing Date, each of the Company and Sellers shall reasonably
cooperate with Buyer with respect to all filings that Buyer reasonably elect to
make or are required by Legal Requirements to make in connection with the
transactions contemplated herein.
(b) The Company and Sellers shall use their commercially reasonable efforts
to satisfy or cause to be satisfied, in the most expeditious manner practicable,
all of the conditions precedent that are set forth in Article VIII, as
applicable to each of them, and to cause the transactions contemplated by this
Agreement to be consummated. The Company and Sellers, at the reasonable request
of Buyer, shall promptly execute and deliver such other instruments and do and
xxxvi
perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated by this Agreement.
6.5 Non-Solicitation.
(a) From and after the date of this Agreement until the earlier to occur of
the Closing or termination of this Agreement pursuant to Article X, the Company
and Sellers will not, and will not permit their respective Representatives to,
directly or indirectly (a) initiate, solicit, or encourage any inquiries, offers
or proposals for any "Acquisition Proposal" (as defined below) by any Person
(other than Buyer or their Representatives), or (b) participate in any
discussions or negotiations with, or disclose any non-public information not
customarily disclosed consistent with the Company's past practices concerning
the Company to, or afford access to the properties, books, or records of the
Company to, or otherwise assist or facilitate, or enter into any agreement or
understanding with, any Person (other than Buyer and their Affiliates) for the
purpose of making, or otherwise facilitate the making of, an Acquisition
Proposal; or (c) agree to, approve or recommend any Acquisition Proposal.
(b) For the purposes of this Agreement, "Acquisition Proposal" shall mean
any one of the following (other than the transactions among the Company,
Sellers, Buyer contemplated hereunder): (i) a proposal for any transaction
pursuant to which any Person or group of Persons (other than Sellers) (a "Third
Party") proposes to acquire beneficial ownership of any equity securities of the
Company, whether from the Company or pursuant to a tender offer, exchange offer,
recapitalization, reorganization or otherwise, (ii) a proposal for any merger,
consolidation or other business combination involving the Company pursuant to
which any Third Party proposes to acquire beneficial ownership of any equity
securities of the Company or of the entity surviving such merger, consolidation
or other business combination, (iii) a proposal for any other transaction or
series of related transactions (including any license) pursuant to which any
Third Party proposes to acquire control of any assets of the Company (other than
a proposal to acquire inventory in the ordinary course of business consistent
with past practices), or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(c) The Sellers and the Company will, and the Company will cause its
Representatives to, promptly cease any and all existing activities, discussions
or negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. The Company or Sellers will promptly notify Buyer if it
receives any proposal, inquiry or request for information in connection with an
Acquisition Proposal or potential Acquisition Proposal.
(d) Notwithstanding the foregoing, no provision of this Section 6.5 shall
be construed (i) to prohibit any of the Company, Sellers or their respective
Representatives from responding to any proposal, inquiry or request for
information in connection with an Acquisition Proposal or potential Acquisition
Proposal for the purpose of advising the Person making such proposal, inquiry or
request of the Company's and Sellers' obligations under this Section 6.5 or (ii)
to require any of the Company, Sellers or their respective Representatives to
disclose to Buyer any terms and conditions of any such proposal, inquiry or
request, including the identity of the party making an Acquisition Proposal.
xxxvii
6.6 Notice of Developments--Company and Seller. The Company shall give
prompt written notice to Buyer of any development (but in no event later than
five (5) Business Days after the Company becomes aware of any such development)
causing, or which would reasonably be expected to cause, a breach of any of the
Company's representations and warranties set forth in Article III above, and
Sellers shall give prompt written notice to Buyer of any development (but in no
event later than five (5) Business Days after any Seller becomes aware of any
such development) causing, or which would reasonably be expected to cause, a
breach of any of Sellers' representations or warranties set forth in Article IV
above. No disclosure by the Company or any Seller pursuant to this Section 6.6,
however, shall be deemed to amend or supplement the Disclosure Schedules or to
prevent or cure any misrepresentation or breach of warranty by the Company or
any Seller.
6.7 Consents. The Company and Sellers shall use their commercially
reasonable efforts to obtain as soon as practicable after the date hereof, and
in any event prior to the Closing Date, all third-party Consents (including
those identified on Schedules 3.2(b), 3.2(c) or 4.2), and give, as soon as
practicable after the date hereof, all third-party notices, in each case which
may be required under any instruments, Contracts, commitments, or arrangements
in connection with the consummation of the transactions contemplated hereby, and
Buyer shall reasonably cooperate with the Company and Sellers in assisting them
to obtain such third-party Consents and to deliver such third-party notices;
provided, however, that nothing herein shall be deemed to require Buyer to incur
any costs or expenses in connection with such cooperation; and provided,
further, that nothing herein shall be deemed to require Sellers or the Company
to pay any material costs or pay any consent fees required in connection with
obtaining such third-party consents, approvals or the giving of such notices,
including, without limitation, any fees or other amounts payable under any
Contract in connection with the transactions contemplated hereby.
6.8. Shareholders Agreements. Between the date hereof and the Closing Date,
Sellers and the Company shall terminate that certain Shareholders Agreement by
and among certain of Sellers and the Company, dated as of July 29, 1994, on
terms and conditions reasonably satisfactory to Buyer and with no further
obligation or liability of the Company or any other party thereto.
6.9 Termination of 401(k) Plan. Unless Buyer directs the Company otherwise
in writing no later than five (5) Business Days prior to the Closing Date, the
Company's Board of Directors shall adopt resolutions terminating, effective at
least one (1) day prior to the Closing Date, any benefit plan which is intended
to meet the requirements of section 401(k) of the IRC (each such benefit plan, a
"401(k) Plan"). At the Closing, the Company shall provide Buyer with (i)
executed resolutions of the Company Board of Directors authorizing such
termination and (ii) an executed copy of any necessary amendment to each such
401(k) Plan in a form reasonably satisfactory to Buyer that is intended to
assure compliance with all applicable requirements of the IRC and the
regulations thereunder.
xxxviii
ARTICLE VII
COVENANTS OF BUYER
7.1 Reasonable Efforts; Required Approvals.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, Buyer shall use its commercially reasonable efforts to take, or cause
to be taken, all actions, and do, or cause to be done, and to assist and
cooperate with the Company and Sellers in doing, all things necessary, proper or
advisable by applicable Legal Requirements to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by this
Agreement. As promptly as practicable after the date of this Agreement, Buyer
shall use its commercially reasonable efforts to make all filings required by
Legal Requirements to be made by them to consummate the transactions
contemplated by this Agreement. Between the date of this Agreement and the
Closing Date, Buyer shall reasonably cooperate with the Company and Sellers with
respect to all filings that the Company and Sellers reasonably elect to make or
are required by Legal Requirements to be made in connection with the
transactions contemplated herein. Buyer shall (i) reasonably cooperate with the
Company and Sellers in assisting them to obtain the consents referred to in
Section 6.7 hereof, including those consents identified on Schedules 3.2(b),
3.2(c) and 4.2; provided that nothing herein shall be deemed to require Buyer to
incur any costs or expenses in connection with the obtaining of such consents;
and (ii) exercise its commercially reasonable efforts to obtain all consents
identified in Schedule 5.2(b), provided that nothing herein shall be deemed to
be a condition to the Closing and the failure to obtain any such consents shall
not delay the Closing.
(b) Buyer shall use its commercially reasonable efforts to satisfy or cause
to be satisfied, in the most expeditious manner practicable, all of the
conditions precedent that are set forth in Article IX, as applicable to each of
them, and to cause the transactions contemplated by this Agreement to be
consummated. Buyer, at the reasonable request of the Company or Sellers, shall
promptly execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated by this
Agreement.
7.2 WARN Act. In the event Buyer discontinues all or part of the operations
of the Company and/or fails to employ or discontinues the employment permanently
or temporarily of any Company employees on and after the Closing Date, Buyer
shall be liable and responsible for compliance with and liability under the
Federal Worker Adjustment and Retraining Act by the Company and any similar
state or local law or ordinance.
7.3 Notice of Developments-Buyer. Buyer shall give prompt written notice to
the Company and Sellers of any development (but in no event later than five (5)
Business Days after Buyer becomes aware of any such development) causing, or
which would reasonably be expected to cause, a breach of any of or Buyer's
representations and warranties set forth in Article V above. No disclosure by
Buyer pursuant to this Section 7.3, however, shall be deemed to amend or
supplement Schedule 5.2(b) annexed hereto or to prevent or cure any
misrepresentation or breach of warranty by Buyer.
xxxix
7.4 Financing. Buyer shall use its commercially reasonable efforts to
obtain financing from one or more lenders as necessary for Buyer to pay (i) the
Preliminary Purchase Price payable at the Closing, (ii) all related fees and
expenses payable by or on behalf of Buyer in connection with the transactions
contemplated herein, and (iii) any other amounts (including retirement of the
SunTrust Obligations) necessary for the consummation of the transactions
contemplated herein (such financing referred to herein as the "Financing") and
to satisfy the conditions of the lender extending the Financing.
7.5 SunTrust Obligations. Buyer shall use its commercially reasonable
efforts to pay SunTrust, at or prior to the Closing, for the benefit of SunTrust
and the other lenders party to the SunTrust Credit Agreement, in the amount set
forth in the payoff letter referenced in Section 2.5(a)(iv) hereof as shall
fully satisfy the SunTrust Obligations.
ARTICLE VIIA
ADDITIONAL COVENANTS
7A.1 Noncompetition and Nonsolicitation. Xxxxxxxx X. Xxxxx hereby agrees
that:
(a) During the period from the Closing Date to and including (i) the fifth
(5th) anniversary of the Closing Date in each of the states set forth in
Schedule 7A.1(i), and (ii) the third (3rd) anniversary of the Closing Date in
any other state set forth in Schedule 7A.1(ii) and not set forth on Schedule
7A.1(i), provided, however, that such three (3) year period shall be extended to
a period of five (5) years in any such state where Buyer shall have commenced
operations at any time prior to the expiration of such three (3) year period (in
each case, the "Noncompete and Non-Solicitation Period"), he shall not, directly
or indirectly, own any interest in, manage, control, participate in (whether as
an owner, operator, manager, consultant, officer, director, employee, investor,
agent, representative or otherwise), consult with, render services for, or in
any other manner engage in any business that is being conducted by the Company
as of the Closing Date. Notwithstanding the foregoing, nothing herein shall
prohibit him from being a passive owner of not more than two percent (2%) of the
outstanding publicly traded equity securities of an entity that engages in such
business, so long as he has no active participation in the business of such
entity.
(b) During the Noncompete and Non-Solicitation Period, he shall not
directly or indirectly through another entity (a) induce any employee of the
Company to leave the employ of the Company, or materially interfere with the
employment relationship between the Company and any employee thereof, (b) hire
any person who then is, or was at anytime during the immediately preceding one
year period, an employee of the Company, or (c) induce any customer, supplier,
licensee, licensor, franchisee or lessor of the Company to cease doing business
with the Company, or materially interfere with the relationship between any such
customer, supplier, licensee, licensor or franchisee and the Company (including,
without limitation, by making any false or disparaging statements about the
Company).
(c) The parties hereto acknowledge and agree that the covenants set forth
in this Section 7A.1 are reasonable with respect to period, geographical area
and scope. Notwithstanding anything in this Section 7A.1 to the contrary, if at
any time, in any judicial proceeding, any of the restrictions stated in this
Section 7A.1 found by a final order of a court of competent jurisdiction to be
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unreasonable or otherwise unenforceable under circumstances then existing, the
parties agree that the period, scope or geographical area, as the case may be,
shall be reduced to the extent necessary to enable the court to enforce the
restrictions to the extent such provisions are allowable under law, giving
effect to the agreement and intent of the parties hereto that the restrictions
contained herein shall be effective to the fullest extent permissible. Xxxxxxxx
X. Xxxxx acknowledges and agrees that money damages may not be an adequate
remedy for any breach or threatened breach of the provisions of this Section
7A.1 and that, in such event, Buyer, the Company or their respective permitted
successors or assigns shall, in addition to any other rights and remedies
existing in its favor, be entitled to seek specific performance, injunctive
and/or other relief from any court of competent jurisdiction in order to enforce
or prevent any violations of the provisions of this Section 7A.1 (including
tolling the Noncompete and Non-Solicitation Period as set forth below), provided
that he is found to have been in violation of the provisions of this Section
7A.1. Any injunction that may be determined by a court of competent jurisdiction
to be available shall not require the posting of my bond or other security by
Buyer and the Company or their respective successors or assigns. In the event of
an alleged breach or violation by Xxxxxxxx X. Xxxxx of any of the provisions of
this Section 7A.1, the Noncompete and Non-Solicitation Period will be tolled for
him until such breach or violation is resolved; provided, however, that if he is
found to have not violated the provisions of this Section 7A.1, then the
Noncompete and Nonsolicitation Period will not be deemed to have been tolled.
Xxxxxxxx X. Xxxxx agrees that the restrictions contained in this Section 7A.1
are reasonable in all respects and are necessary to protect the goodwill of the
Company's business.
7A.2 Confidentiality.
(a) Each of Sellers and, prior to the Closing Date, the Company, agree to
use their respective commercially reasonable efforts to maintain the
confidentiality of all proprietary and other non-public information regarding
the Company, except as required to file tax returns and as required by Legal
Requirement, and to turn over to Buyer at the Closing all such materials (and
all copies thereof) they have in their possession. In the event of the breach of
any of the provisions of this Section 7A.2, Buyer, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief (without the posting of bond or other security) in
order to enforce or prevent any violations of the provisions hereof.
(b) In the event that any party hereto reasonably believes after
consultation with counsel that it is required by law to disclose any
confidential information described in this Section 7A.2, the disclosing party
will (i) to the extent permitted by such applicable law, provide the other
parties with prompt notice before such disclosure in order that such other
parties may attempt to obtain a protective order or other assurance that
confidential treatment will be accorded such confidential information and (ii)
provide reasonable cooperation to the other parties in attempting to obtain such
order or assurance. The provisions of this Section 7A.2 shall not apply to any
information, documents or materials which are, as shown by appropriate written
evidence, in the public domain or, as shown by appropriate written evidence,
shall come into the public domain, other than by reason of default by the
applicable party bound hereunder or its Affiliates.
7A.3 Regulation S-X Compliance. Following the Closing Date, Sellers shall
use their commercially reasonable efforts to provide any and all information,
xli
including, without limitation, work papers and work product and to communicate
and cooperate with the Company's Accountants to provide all such information,
which Buyer reasonably requests in order for Buyer to cause the financial
statements delivered to Buyer pursuant to this Agreement to comply with Section
3-05 of Regulation S-X and otherwise necessary in connection with Buyer
complying with its reporting obligations under the Securities Exchange Act of
1934, as amended. Furthermore, Sellers agree that upon the reasonable request of
Buyer, they shall cooperate with the Company's Accountants to assist Buyer in
preparing whatever financial information or financial statements Buyer
reasonably requests in furtherance of this Section 7A.3. Buyer shall pay all
reasonable fees and expenses incurred by Sellers in connection with responding
to Buyer's request under this Section 7A.3. For the avoidance of doubt, Sellers
and Buyer acknowledge and agree that Sellers shall have no obligation to pay any
cost, fees or expenses incurred following the Closing Date by the Company or
Buyer in connection with the preparation of the Company's financial statements
to comply with Section 3-05 of Regulation S-X or otherwise necessary in
connection with Buyer complying with its reporting obligations under the
Securities Exchange Act of 1934, as amended. It being understood that any such
expense incurred or accrued prior to the Closing Date shall be borne solely by
the Company.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived in writing by Buyer, in whole or in part):
8.1 Accuracy of Representations. Each of the representations and warranties
of Company and Sellers contained in this Agreement or in any certificate
delivered to Buyer in connection herewith shall be true and correct (but
determined in each case, other than with respect to Section 3.8, without giving
effect to any qualifications therein referencing the terms "material" or
"Material Adverse Effect" or other terms of similar import or effect) when made
as of the Closing (with the same force and effect as if made as of the Closing,
other than such representations and warranties that are made as of a specified
date, which shall be true and correct as of such date), except where all
failures of such representations and warranties to be so true and correct have
not had, and would not reasonably be expected to have, in the aggregate, a
Material Adverse Effect on the Company or Buyer.
8.2 Covenants. Each of the covenants and other agreements contained in this
Agreement to be complied with by the Company or Sellers on or before the Closing
Date shall have been complied with in all respects, except where all failures to
so comply with such covenants and agreements in the aggregate have not resulted,
and would not reasonably be expected to result, in any material adverse effect
on the ability of any Seller, the Company or Buyer to consummate the
transactions contemplated in this Agreement.
8.3 Consents. Each of the Consents identified on Exhibit B hereto shall
have been obtained by the Company or Sellers on terms and conditions reasonably
acceptable to Buyer and shall be in full force and effect.
8.4 No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other Order (whether temporary,
xlii
preliminary or permanent) issued by any Governmental Body of competent
jurisdiction or other legal restraint or prohibition shall be in effect which
prevents the consummation of the transactions contemplated under this Agreement
on the same terms and conferring on Buyer all the rights and benefits as
contemplated herein; and there shall not be any Legal Requirement or Order
enacted, entered or enforced which makes the consummation of the transactions
contemplated by this Agreement on the same terms and conferring on Buyer all the
rights and benefits as contemplated herein illegal.
8.5 Management Employment Agreement. The Management Employment Agreement
between Buyer and XXXX XXXXXXXXX shall be in full force and effect.
8.6 Closing Deliveries. Buyer shall have received each of the deliveries
set forth in Section 2.5(a) hereto.
8.7 Financing. The Financing shall have been obtained pursuant to Section
7.4 of this Agreement.
8.8 Opinion. Buyer shall have received from Xxxxx & Xxxxxxx L.L.P., counsel
for Sellers and the Company, an opinion addressed to Buyer and dated as of the
Closing Date and in the form attached as Exhibit F hereto.
8.9 FIRPTA Affidavit. Buyer shall have received from the Company a
certificates of non-foreign status complying with Treasury Regulation section
1.1445-2(b).
8.10 Certificates. The Company shall have delivered to Buyer: (i) a copy of
the certificate of incorporation of the Company, certified by the Secretary of
State of the District of Columbia; (ii) a certificate of good standing for the
Company from the District of Columbia; (iii) certificates of good standing or
qualification for each jurisdiction set forth in Schedule 2.5(xi), with respect
to each of (i)-(iii) above, such certificates to be dated no more than five days
prior to the Closing Date; and (iv) a certificate, dated as of the Closing Date
and executed by the Secretary of the Company, certifying to (A) the incumbency
of all officers executing this Agreement and/or any document contemplated hereby
on behalf of the Company, (B) the accuracy and completeness of attached copies
of the Company's Organizational Documents, (C) the resolutions of the Board of
Directors and requisite stockholders of the Company authorizing and approving
the execution and delivery of this Agreement by the Company, the performance of
its obligations hereunder, and the consummation of the transactions contemplated
hereby.
8.11 338(h)(10) Election. Each Seller shall deliver to Buyer a properly
completed and executed Internal Revenue Service Form 8023 and any other forms
and documents necessary to make the 338(h)(10) Election.
8.12 Termination of Shareholder Agreements. The Company and Sellers shall
have fully complied with the covenants set forth in Section 6.8 hereto.
8.13 JM Holdings Lease. The Tyson's Corner Lease between JM Holdings, LLC
and the Buyer, relating to the "Tyson's Corner" premises and attached hereto as
Exhibit C shall be in full force and effect.
8.14 Release of Guarantees. All guarantees (or similar instruments),
relating to the Xx Xxxxx Note shall have been terminated, and, with respect to
xliii
the guarantees relating to the Tyson's Corner premises, SunTrust shall have
agreed to terminate all guarantees relating to the Tyson's Corner premises at
the Closing.
8.15 Escrow Agreement. The Escrow Agreement by and among the Buyer, the
Escrow Agent and Sellers shall be in full force and effect.
8.16 Joinder of Remaining Stockholders. Each of the Remaining Stockholders
shall have become a party to this Agreement as a Seller.
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ARTICLE IX
CONDITIONS PRECEDENT TO COMPANY'S AND SELLERS' OBLIGATION TO CLOSE
The Company's and Sellers' obligation to sell the Shares and to take the other
actions required to be taken by Sellers at the Closing, as applicable, is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived in writing by the Company and
on behalf of all Sellers, in whole or in part):
9.1 Accuracy of Representations. Each of the representations and warranties
of Buyer contained in this Agreement or in any certificate delivered to the
Company or Sellers in connection herewith shall be true and correct (but
determined in each case without giving effect to any qualifications therein
referencing the terms "material" or "Material Adverse Effect" or other terms of
similar import or effect) when made as of the Closing (with the same force and
effect as if made as of the Closing, other than such representations and
warranties that are made as of a specified date, which shall be true and correct
as of such date), except where all failures of such representations and
warranties to be so true and correct have not had, and would not reasonably be
expected to have, in the aggregate, a Material Adverse Effect on the Company or
Sellers.
9.2 Covenants. Each of the covenants and other agreements contained in this
Agreement to be complied with by Buyer on or before the Closing Date shall have
been complied with in all respects, except where all failures to so comply with
such covenants and agreements in the aggregate have not resulted, and would not
reasonably be expected to result, in a Material Adverse Effect on Sellers or a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement.
9.3 No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other Order (whether temporary,
preliminary or permanent) issued by any Governmental Body of competent
jurisdiction or other legal restraint or prohibition shall be in effect which
prevents the consummation of the transactions contemplated under the this
Agreement on the same terms and conferring on the Company and Sellers all the
rights and benefits as contemplated herein; and there shall not be any Legal
Requirement or Order enacted, entered or enforced which makes the consummation
of the transactions contemplated by this Agreement on the same terms and
conferring on the Company and Sellers all the rights and benefits as
contemplated herein illegal.
9.4 Releases. The Company and Sellers shall have received the Yacoubian
Release and the Xx Xxxxx Release and each of such releases shall be in full
force and effect.
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ARTICLE X
TERMINATION
10.1 Termination Events. This Agreement may, by notice given prior to the
Closing, be terminated:
(a) by Buyer if Buyer is not in breach of its obligations of this
Agreement, and if (i) at any time that the Company or any Seller is in material
breach of any of the representations and warranties such that Section 8.1 would
not be satisfied (treating such time as if it were the Closing time for purposes
of this Section 10.1(a)) or (ii) there has been a material breach on the part of
the Company or any Seller of any of their covenants or agreements contained in
this Agreement such that Section 8.2 would not be satisfied (treating such time
as if it were the Closing time for purposes of this Section 10.1(a)), and in
both case (i) and case (ii) hereof, such breach has not been waived, provided
that written notice has been given to the breaching party of the intention of
the non-breaching party to terminate under this Section 10.1(a) due to such
breach and the breaching party has not cured such breach within thirty (30) days
of receipt of such notice, or if such breach is unable to be cured within such
30-day period, the breaching party has made commercially reasonable efforts to
cure such breach and such breach is cured not later than forty-five (45) days
after notice thereof;
(b) by either the Company or the Sellers if neither the Company nor Sellers
is in breach of its obligations of this Agreement, and if (i) at any time that
Buyer is in material breach of any of the representations and warranties such
that Section 9.1 would not be satisfied (treating such time as if it were the
Closing time for purposes of this Section 10.1(b)) or (ii) there has been a
material breach on the part of Buyer of any of their covenants or agreements
contained in this Agreement such that Section 9.2 would not be satisfied
(treating such time as if it were the Closing time for purposes of this Section
10.1(b)), and in both case (i) and case (ii) hereof, such breach has not been
waived, provided that written notice has been given to the breaching party of
the intention of the non-breaching party to terminate under this Section 10.1(a)
due to such breach and the breaching party has not cured such breach within
thirty (30) days of receipt of such notice, or if such breach is unable to be
cured within such 30-day period, the breaching party has made commercially
reasonable efforts to cure such breach and such breach is cured not later than
forty-five (45) days after notice thereof;
(c) by mutual written consent of Buyer, the Company and the Sellers;
(d) by either Buyer, the Company or the Sellers if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply with its material obligations under this Agreement) on or
before June 7, 2007, or such later date that the parties may agree upon in
writing provided that if the Agreement is terminated by any of Buyer, the
Company or the Sellers on or after June 7, 2007 ("Financing Termination Date")
due to the failure of Buyer to secure the Financing, Buyer shall immediately pay
the Company an amount equal to the accounting and legal expenses incurred by the
Company and Sellers in connection with this Agreement and transactions
contemplated hereby, up to an amount not to exceed $300,000 (the "Financing
Delay Fee"); provided, however that if Buyer has previously paid the Financing
Termination Fee, then Buyer, in its sole discretion, may elect at any time on or
prior to June 7, 2007 to extend the Financing Termination Date to July 7, 2007;
xlvi
and, provided, further that if the Closing occurs prior to July 7, 2007, such
Financing Delay Fee shall be credited against the Base Purchase Price; or
10.2 Effect of Termination. Each party's right of termination under Section
10.1 is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 10.1, all further
obligations of the parties under this Agreement will terminate, except that the
provisions of this Section 10.2, Section 10.1(d), Section 7A.2 and Article XIV
will survive after such termination; provided that nothing herein will relieve
any party from liability for any breach, prior to termination of this Agreement
in accordance with its terms, of any representation, warranty, covenant or
agreement contained in this Agreement.
10.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed by Buyer, the Company and Sellers.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
11.1 Representations and Warranties. All representations and warranties in
this Agreement shall expire on the date which is twenty-four (24) months after
the Closing Date, with the exception of (i) the representations and warranties
set forth in Sections 3.10 (Taxes) and 3.11 (Employee Benefits) (collectively,
the "Fundamental Representations"), which shall survive the Closing Date and
remain in full force and effect until 60 days after the expiration of their
respective statutes of limitation (including any extension or waiver of such
periods); and (ii) representations and warranties related to Sections 3.26
(Systems LLC) and 4.3 (Ownership of Shares), which representations and
warranties shall remain in full force and effect forever.
11.2 General. Neither Buyer nor any Seller shall have any liability
whatsoever with respect to any claim for breach of a representation or warranty,
brought after the respective expiration dates set forth in this Article XI,
except in the case of fraud or willful misconduct. All covenants and obligations
under this Agreement shall survive until 60 days after the expiration of their
respective statutes of limitation (including any extension or waiver of such
periods) unless otherwise limited by the terms hereof. Notwithstanding anything
to the contrary contained in this Agreement, all obligations and agreements
related or attributable to Taxes and Tax Returns should survive until 60 days
after the applicable statute of limitations for such Tax or Tax Return (taking
into account any extension or waiver) to which such agreement or obligation
relates.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification and Payment of Damages by Sellers.
(a) Representations, Warranties and Covenants. After the Closing, except as
limited by Article VII hereof, and subject to the further provisions of this
xlvii
Article XII and Sections 12.1 and 12.5 hereof, each Seller shall, jointly and
severally, protect, defend, indemnify, and hold Buyer, and its Affiliates
("Buyer Indemnified Persons") harmless from and against any and all Damages
sustained, incurred or suffered by or asserted against any of them, directly or
indirectly, as a result of or relating to or arising out of: (i) any breach of
any representation or warranty made by Sellers or the Company in this Agreement
or in any certificate delivered to Buyer in connection herewith (in each case,
other than with respect to Section 3.8, determined without giving effect to any
qualifications therein referencing the terms "material" or "Material Adverse
Effect" or other terms of similar import or effect) or (ii) any breach by any
Sellers of any covenant or obligation of any Sellers in this Agreement or any
breach by the Company of any pre-Closing covenant or pre-Closing obligation of
the Company in this Agreement. Notwithstanding anything to the contrary in this
Agreement (i) no investigation Buyer shall affect the representations and
warranties of Seller and the Company under this Agreement or contained in any
document, certificate or other writing furnished or to be furnished to Buyer in
connection with the transactions contemplated hereby and (ii) such
representations and warranties shall not be affected or deemed waived by reason
of the fact that Buyer knew or should have known that any of the same is or
might be inaccurate in any respect. Except as otherwise provided herein, any
assertion by Buyer that Sellers are liable under the terms of this Section
12.1(a) must be made by Buyer in writing specifying in reasonable detail the
Damages with respect to such claim and must be sent to Sellers on or prior to
the expiration of the survival period of the particular representation, warranty
or covenant as provided in Article VII hereof.
(b) Supplemental Tax Indemnification. Notwithstanding the provisions of
Section 12.1(a) and in addition thereto (without duplication), Sellers shall be
obligated to indemnify Buyer with respect to Taxes and Tax Returns as set forth
in Section 12.1 hereof. All such indemnification obligations related to Taxes
shall be treated as Tax Claims for purposes of the survival provisions of
Article XI, and shall not be subject to the $100,000 threshold (the "$100,000
Threshold") or the Cap (each, as referred to or defined hereinafter in Section
12.4(a)) limitations that are set forth in Section 12.4(a) hereof. Sellers'
indemnification obligations with respect to Taxes and Tax Returns, while not
subject to the limitations set forth in Section 12.4(a) hereof, shall
nevertheless be subject to the other provisions related to indemnification that
are set forth in Sections 12.4(b) and (c) and 12.3 through 12.13 hereof. For
purposes of clarification, any and all references to "Damages" found within
Section 12.4(b) and (c) and 12.3 through 12.13 hereof shall include Damages for
which a Tax Claim is asserted by Buyer hereunder.
12.2 Indemnification and Payment of Damages by Buyer. After the Closing,
Buyer will protect, defend, indemnify and hold Sellers and their Affiliates
("Seller Indemnified Persons") harmless from and against any and all Damages
sustained, incurred or suffered by or asserted against any of them, directly or
indirectly, as a result of or relating to or arising out of: (a) any breach of
any representation or warranty made by Buyer in this Agreement or in any
certificate delivered to Sellers, and in any certificate delivered to the
Company pre-Closing, in connection herewith (in each case, determined without
giving effect to any qualifications therein referencing the terms "material" or
"Material Adverse Effect" or other terms of similar import or effect) or (b) any
breach by Buyer of any covenant or obligation of Buyer in this Agreement or any
breach by the Company of any post-Closing covenant or post-Closing obligation
under this Agreement. Except as otherwise provided herein, any assertion by
Sellers that Buyer is liable under the terms of this Section 12.2 must be made
by Sellers in writing specifying in reasonable detail the Damages with respect
xlviii
to such claim and must be sent to Buyer on or prior to the expiration of the
survival period of the particular representation, warranty or covenant as
provided in Article VII hereof.
12.3 Indemnitee's Tax Benefits. Indemnification payments under this Article
XII and Section 11.1 hereof shall be paid by the indemnifying party without
reduction for any Tax benefits available to the indemnified party with respect
to Damages.
12.4 Limitations.
(a) No claims for breaches of representations, warranties, covenants or
obligations may be brought after the time limitations set forth in Article XI.
Notwithstanding anything herein to the contrary, other than with respect to a
claim arising out of fraud or willful misconduct, no party shall have any
obligation to indemnify the other hereunder, unless (except with respect to a
claim arising out of Section 12.1(a)(ii), or except with respect to a breach of
any Fundamental Representation, or with respect to a Tax Claim) the amount of
Damages sustained or incurred by such party with respect to all claims (with
claims arising out of the same event or set of factual circumstances being
aggregated (a "Claim")) exceeds $100,000, in which case the indemnified party
shall be entitled to $100,000 plus any additional Damages sustained or incurred
by such indemnified party with respect to all Claims by such indemnified party
pursuant to this Agreement up to (but not in excess of) a maximum aggregate
indemnity for such Damages of an amount equal to $1,000,000 (the "Cap"). For the
avoidance of doubt, except with respect to a claim arising out of (a) Section
12.1(a)(ii); (b) fraud or willful misconduct, or with respect to a breach of;
(c) any Fundamental Representation; or (d) with respect to a Tax Claim, the
amount of Damages sustained or incurred with respect to any Claims, (i) once any
indemnifying party has indemnified an indemnified party in an amount equal to
the Cap, no further Claims for indemnification against such party shall be
permitted, (ii) the total aggregate indemnification liability of Sellers
collectively under this Agreement shall in no event exceed $1,000,000, and (iii)
the total aggregate indemnification liability of Buyer under this Agreement
shall in no event exceed $1,000,000. Notwithstanding the provisions of this
Article XII, except with respect to a breach of any Fundamental Representation,
or Tax Claims or in the case of fraud or willful misconduct, no indemnifying
party shall have any indemnification obligations for Claims for Damages where
such Damages are less than $5,000 per Claim (the "$5,000 Deductible") and in
such case where such Damages exceed the $5,000 Deductible the indemnifying party
shall only be obligated for the Damages on such Claim in excess of the $5,000
Deductible. Notwithstanding the provisions of this Article XII, except with
respect to a breach of any Fundamental Representative or Tax Claims or in the
case of fraud or willful misconduct, after the attainment of the $100,000
Threshold, no indemnifying party shall have any indemnification obligations for
Claims where such Damages are less than $2,500 per Claim (the "$2,500
Deductible") and in such case where such Damages exceed the $2,500 Deductible
the indemnifying party shall only be obligated for the Damages in excess of the
$2,500 Deductible.
(b) The indemnification obligations of Sellers under Article XII and
Section 13.1 shall be satisfied by the following means:
xlix
(i) first, recourse against such monies as are on deposit in the Escrow
Account; and
(ii) second, upon the exhaustion or unavailability of the Escrow Account,
the exercise by any Buyer Indemnified Person of such Buyer Indemnified Person's
indemnification rights through direct personal recourse against Sellers
individually; provided, however, that (A) no Buyer Indemnified Person shall be
entitled to indemnification by any Seller pursuant to this Agreement unless
notice of the indemnification claim is given to the Sellers prior to the date of
termination of the applicable survival period specified in Article VII, and (B)
no Buyer Indemnified Person shall be entitled to receive payment pursuant to any
of the rights set forth in subsection (ii) above unless and until all monies on
deposit in the Escrow Account have been paid out or released or are the subject
of pending or unresolved claims for payment of such monies pursuant to the
exercise of rights under this Agreement.
(c) Notwithstanding anything herein to the contrary, in no event shall an
indemnifying party be liable under this Article XIII for any indirect, punitive,
exemplary, special or consequential damages.
12.5 Distribution from Escrow Account to Sellers. On May 31, 2008, the
Escrow Agent shall deliver any remaining amounts in the Escrow Account to
Sellers based on each Seller's Ownership Percentage, less amounts that would be
necessary to satisfy any then pending and unsatisfied or unresolved claims
specified in any Escrow Claim Notice previously delivered to the Escrow Agent if
such claims were resolved in favor of Buyer, and less any applicable withholding
tax. Amounts not distributed under the foregoing in respect of pending and
unsatisfied or unresolved claims shall remain in the Escrow Account until the
related claims have been resolved or until any such portion of such amounts is
determined pursuant to Section 12.8 to be no longer necessary to satisfy such
claims. As soon as all such claims have been resolved or any such portion of
such amounts is determined pursuant to Section 12.8 to be no longer necessary to
satisfy such claims, the Escrow Agent shall deliver to Sellers based on each
Seller's Ownership Percentage the remaining portion of such undistributed
amount, if any, not required to satisfy such claims (less any applicable
withholding tax).
12.6 Claims upon Escrow Account. Upon receipt by the Escrow Agent on or
before the close of business on May 31, 2008 of a notice from Buyer Indemnified
Person (an "Escrow Claim Notice"),
(a) stating that an indemnification claim or claims pursuant to Section
12.1 or any other provision of this Agreement that permits payment to be made
out of the Escrow Account is being made; and
(b) specifying in reasonable detail the Damages in respect of the claim,
the Escrow Agent shall, subject to the provisions of Article VII, Sections 12.4,
12.7 and 12.8, deliver to Buyer (as nominee and on behalf of such Buyer
Indemnified Person) out of the Escrow Account, as promptly as practicable, cash
held in the Escrow Account in an amount equal to such Damages. Cash contributed
to the Escrow Account in accordance with Section 2.6 hereof shall be delivered
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to Buyer out of the Escrow Account pro rata based on each Seller's Ownership
Percentage, subject to the limitations set forth in Section 12.4.
12.7 Objections to Claims upon the Escrow Account. At the time of delivery
of any Escrow Claim Notice to the Escrow Agent, a duplicate copy of such Escrow
Claim Notice shall be delivered to the Sellers, and, for a period of thirty (30)
days after the receipt by the Escrow Agent of such Escrow Claim Notice, the
Escrow Agent shall make no payment pursuant to Section 12.6 hereof unless the
Escrow Agent shall have received written authorization signed by all Sellers to
make such delivery prior to the end of such thirty (30) day period. After the
expiration of such thirty (30) day period, even if the Escrow Agent has not
received written authorization from Sellers, the Escrow Agent shall make payment
in accordance with Section 12.6 hereof; provided that no such payment may be
made if Sellers shall object in a written statement (describing the basis for
any objection with reasonable specificity and signed by all Sellers) to the
Claim made in the Escrow Claim Notice and such statement shall have been
delivered to the Escrow Agent and to Buyer prior to the expiration of such
thirty (30) day period.
12.8 Resolution of Claims upon the Escrow Account.
(a) In case Sellers shall so object in writing to any claim or claims by
any Buyer Indemnified Person made in any Escrow Claim Notice, Sellers and such
Buyer Indemnified Person shall attempt in good faith for thirty (30) days to
agree upon the rights of the respective parties with respect to each of such
claims. If Sellers and such Buyer Indemnified Person should so agree, a
memorandum setting forth such agreement shall be prepared and signed by all
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall pay the amount set forth in
such memorandum in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith negotiation, Buyer
may institute proceedings in a court of competent jurisdiction (in accordance
with Section 10.5) to resolve any such dispute, and each of Buyer Indemnified
Person and Sellers shall seek to resolve such dispute in as expeditious a manner
as practicable. In the case of any such proceeding, Buyer Indemnified Person and
Sellers shall each be responsible for the payment of their own fees and
expenses.
12.9 Procedures for Indemnification -- Third Party Claims.
(a) The following additional provisions shall apply with respect to any
claims or demands by third parties (a "Third Party Claim") as to which any Buyer
Indemnified Person seeks indemnification hereunder, except that claims or
demands by Taxing Authorities for Taxes shall be governed by Section 13.10.
Unless by written notice delivered by any Buyer Indemnified Person to Sellers
within thirty (30) days after giving Sellers the applicable Escrow Claim Notice
in respect of such Third Party Claim, or within thirty (30) days after
notification by any Buyer Indemnified Person to the Sellers of a Buyer
Indemnified Person's intent to seek indemnification in addition to any funds
remaining in the Escrow Account or after the Escrow Account has been exhausted
(a "Non-Escrow Claim Notice"), such Buyer Indemnified Person affirmatively
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elects not to control the defense of such Third Party Claim (such notice, the
"Non-Defense Election"), such Buyer Indemnified Person will defend, contest,
negotiate or settle such Third Party Claim through counsel of its own selection
(who shall be reasonably acceptable to Sellers), and Sellers shall cooperate
with and assist such Buyer Indemnified Person in the defense of such claim or
demand at Sellers' expense; provided, however, however, that (i) Sellers shall
be entitled to participate in such defense, at their own expense, with counsel
of their choosing and Buyer, such Buyer Indemnified Person and their counsel
shall cooperate with Sellers in doing so, and (ii) such Buyer Indemnified Person
will not settle, compromise, or offer to settle or compromise any such Third
Party Claim unless Sellers provide prior written consent signed by all Sellers,
which consent will not be unreasonably withheld or delayed so long as (A) such
settlement or compromise releases Sellers completely in connection with such
Third Party Claim, with no statement as to or an admission of fault by or on
behalf of Sellers and no monetary or nonmonetary relief granted by or imposed
upon Sellers and (B) no indemnification under this Article VIII is sought by any
Buyer Indemnified Person in connection with the Third Party Claim covered by the
settlement. In the event indemnification is sought in connection with such
settlement, Sellers may withhold such prior written consent in their sole and
absolute discretion, and in the event a Buyer Indemnified Person enters into
such a settlement without Sellers' prior written consent, no indemnification
shall be permitted with respect to such settlement.
(b) If the Buyer Indemnified Person delivers a Non-Defense Election to
Sellers within thirty (30) days after giving the Sellers the applicable Escrow
Claim Notice or Non-Escrow Claim Notice in respect of such Third Party Claim,
Sellers at their own expense shall be entitled to defend, contest, negotiate or
settle such Third Party Claim if Sellers provide written notice signed by all
Sellers to the Buyer Indemnified Person within forty-five (45) days after
receiving the applicable Escrow Claim Notice or Non-Escrow Claim Notice in
respect of such Third Party Claim that Sellers elect to control the defense of
such Third Party Claim (such notice, a "Sellers Defense Election"), and in the
event of such a Sellers Defense Election, Buyer and the Buyer Indemnified Person
shall cooperate with and assist Sellers in the defense of such Third Party
Claim. In the event that Sellers have assumed the defense of any Third Party
Claim, then Sellers shall have complete authority to control the defense of such
Third Party Claim and to settle, compromise, or offer to settle or compromise
such Third Party Claim, and the Buyer Indemnified Person shall have no power or
authority to object to any such settlement or compromise. If the Buyer
Indemnified Person delivers the Non-Defense Election to Sellers within thirty
(30) days after giving Sellers the applicable Escrow Claim Notice or Non-Escrow
Claim Notice in respect of such Third Party Claim, and Sellers do not deliver a
Sellers Defense Election within forty-five (45) days after receiving the
applicable Escrow Claim Notice or Non-Escrow Claim Notice in respect of such
Third Party Claim, then the Buyer Indemnified Person shall have complete
authority to control the defense of such Third Party Claim and to settle,
compromise, or offer to settle or compromise such Third Party Claim, and Sellers
shall have no power or authority to object to any such settlement or compromise.
(c) In the event such Buyer Indemnified Person chooses to defend, contest,
negotiate or settle a Third Party Claim through counsel of its own selection
pursuant to Section 12.9(a), it shall do so at its own expense, and such expense
shall not be subject to indemnification by Sellers pursuant to this Article XII.
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12.10 Sellers' Remedy. Each Seller hereby agrees that it shall not (and
shall cause its Affiliates not to) directly or indirectly make any claim for
indemnification or contribution against Buyer, the Company or any of their
respective Affiliates by reason of the fact that any Seller or any Affiliate of
any Seller is or was a stockholder, director, manager, officer, employee or
agent of the Company or any of its Affiliates or is or was serving at the
request of the Company or any of its Affiliates as a partner, manager, trustee,
director, officer, employee or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement or otherwise) with respect to any action,
suit, proceeding, complaint, claim or demand brought by Buyer or any of its
Affiliates against Sellers pursuant to this Agreement. In no event shall the
Company or any of its Affiliates have any liability whatsoever to any Seller (or
any Affiliate of any Seller) for breaches of the representations, warranties,
agreements or covenants of such Seller or the Company, hereunder, and no Seller
shall (and each shall cause its Affiliates not to) in any event seek
contribution from the Company or any of its Affiliates in respect of any
payments required to be made by any Seller pursuant to this Agreement.
12.11 Tax Treatment. All indemnification payments shall constitute
adjustments to the Final Purchase Price for all Tax purposes, and no party
hereto shall take any position inconsistent with such characterization, unless a
final determination by any Governmental Body causes any such amount not to
constitute an adjustment to the Final Purchase Price for Tax purposes.
12.12 Manner of Payment. Subject to Section 12.4(b) of this Agreement, any
indemnification of Buyer or any Seller hereunder shall be effected by wire
transfer of immediately available funds from Sellers or Buyer, as the case may
be, to an account(s) designated by Buyer or Sellers, as the case may be, within
ten (10) days after the determination thereof.
12.13 Matters Related to the Sellers.
(a) All actions, decisions and instructions of the Sellers under this
Article VIII shall be made collectively and unanimously by all Sellers, and when
made in such manner, shall be conclusive and binding upon all Sellers and no
Seller shall have any claim or cause of action against Sellers, and Sellers
shall have no liability to any other Seller, for any action taken, decision made
or instruction given by Sellers in connection with the Escrow Agreement or this
Agreement, except in the case of own fraud or willful misconduct.
(b) Subject to applicable privileges, Buyer and its Affiliates shall
provide Sellers reasonable access, subject to appropriate confidentiality
restrictions, to information of and concerning any indemnity claims against the
Sellers pursuant to Section 11 of this Agreement (a "Buyer Indemnity Claim")
which is in the possession or control of Buyer or any of its Affiliates and,
after the Closing Date, the reasonable assistance of the Company's then officers
and employees for purposes of performing Sellers' duties under this Agreement or
the Escrow Agreement and exercising their rights under this Agreement and the
Escrow Agreement, including for the purpose of evaluating any Buyer Indemnity
Claim by Buyer Indemnified Person; provided that, Sellers shall treat
confidentially and not, except as reasonably necessary in connection with
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enforcing their rights hereunder or under the Escrow Agreement, disclose any
nonpublic information from or concerning any Buyer Indemnity Claim to anyone
(except to the Sellers' attorneys, accountants or other advisers and on a
need-to-know basis to other individuals who agree to keep such information
confidential; provided that, in each such case Sellers shall be responsible for
any disclosure by any of the foregoing).
(c) Sellers shall be entitled to rely upon any document or instrument
reasonably believed by them to be genuine, accurate as to content and signed by
any other Seller or by Buyer or its Affiliates or the Escrow Agent. The Sellers
may assume that any Person purporting to give any notice in accordance with the
provisions hereof has been duly authorized to do so.
ARTICLE XIII
TAX MATTERS
The following provisions shall govern the allocation of responsibility for, and
the rights and remedies of Buyer and Sellers with respect to, certain Tax
matters:
13.1 Tax Indemnification. Subject to Sections 12.1(b), 12.3, 12.4(b) and
12.5 through 12.13 hereof, each Seller shall, jointly and severally, protect,
defend, indemnify, and hold Buyer and its Affiliates harmless from and against
(i) all Taxes (or the non-payment thereof) of the Company for all taxable
periods ending on or before the Closing Date and, with respect to all Straddle
Periods, the portion of such periods through the end of the Closing Date
determined in accordance with Section 13.2 (a "Pre-Closing Tax Period"), (ii)
all Taxes of any Person (other than the Company) imposed on the Company as a
transferee or successor, by contract or pursuant to any law, rule or regulation,
which Taxes relate to an event or transaction occurring before the Closing Date,
(iii) all Taxes of any member of an Affiliated Group of which the Company (or
any predecessor of the foregoing) is or was a member on or prior to the Closing
Date, including pursuant to Treasury Regulation ss.1.1502-6 (or any analogous or
similar state, local, or foreign law or regulation), and (iv) any Taxes imposed
under IRC ss.1374 (and any corresponding provision of state or local law).
Sellers shall reimburse Buyer for any Taxes of the Company or any Subsidiary
which are the responsibility of Sellers pursuant to this Section 13.1 at least
five (5) days prior to the later of: (i) the proposed payment of such Taxes by
Buyer or the Company and (ii) the deadline for paying such Taxes.
13.2 Straddle Period. In the case of any Tax period that includes (but does
not end on) the Closing Date (a "Straddle Period"), the amount of Taxes based on
or measured by net income, gains, sales, transfers, expenditures, wages,
salaries or other compensation for the Pre-Closing Tax Period shall be
determined based on an interim closing of the books as of the close of business
on the Closing Date and the amount of any other Taxes for a Straddle Period
which relate to a Pre-Closing Tax Period shall be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days for the taxable period ending on the Closing Date
and the denominator of which is the number of days in such Straddle Period.
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13.3 S Corporation Status. Sellers will not revoke and will not cause the
Company to revoke its election to be taxed as an S corporation within the
meaning of IRC xx.xx. 1361 and 1362 (and corresponding provisions of state and
local law). Sellers will not, and will cause the Company to not, take or allow
any action to be taken that would result in the termination of the Company's
status as a validly electing S corporation within the meaning of IRC xx.xx. 1361
and 1362 (and any corresponding provisions of state or local law). To the extent
permitted by applicable law, Sellers shall include all income, gain, loss,
deduction or other Tax items for Tax periods ending on or prior to the Closing
Date on their Tax returns.
13.4 Tax Periods Ending On or Before the Closing Date. (a) Sellers shall
prepare or cause to be prepared and shall file or cause to be filed (in a manner
consistent with past custom and practice of the Company) all Tax Returns of the
Company for all Tax periods ending on or before the Closing Date (each, a
"Pre-Closing Tax Return"). At least thirty (30) days prior to filing any such
Pre-Closing Tax Return, Sellers shall provide copies of such Pre-Closing Tax
Return to Buyer for review and approval. Buyer shall advise the Sellers of any
disagreement with items shown on such Pre-Closing Tax Returns within fifteen
(15) days following Buyer's receipt of such copies, in which event Sellers and
Buyer shall cooperate to resolve any disagreement. In the event such
disagreement is not resolved within fifteen (15) days following Buyer's notice
to Sellers of such disagreement, then the matter shall be referred to an
Independent Accounting Firm, which such Independent Accounting Firm shall be
directed to decide the matter within ten (10) days after submission of the
matter, and the determination of such Independent Accounting Firm shall be final
and binding on all parties. Each Seller shall be responsible for and shall pay
his or its pro rata share of one-half (1/2) of, and Buyer shall be responsible
for and shall pay one-half (1/2) of, all fees and other costs of such
Independent Accounting Firm.
(b) Buyer shall cause the Company to prepare and file all Straddle Period
Tax Returns. At least thirty (30) days prior to the filing of any such Tax
Return, Buyer shall provide copies of such Straddle Period Tax Return to Sellers
and the principles of Section 13.4(a) shall apply to this Section 13.4(b).
13.5 IRC ss. 338(h)(10) Election. The Company and Sellers shall join with
Buyer in making an election under ss. 338(h)(10) of the IRC (and any
corresponding election under state, local and foreign Tax law) with respect to
the purchase and sale of the Shares hereunder (collectively, a "338(h)(10)
Election"). Sellers shall include any income, gain, loss, deduction or other tax
items resulting from the 338(h)(10) Election on their Tax Returns to the extent
required by applicable law. Sellers shall also pay any Tax imposed on the
Company attributable to the making of the 338(h)(10) Election that would not be
incurred absent the making of the 338(h)(10) Election, including any Tax imposed
under IRC ss. 1374 (and any corresponding provisions of state or local law).
13.6 Purchase Price Allocation. In conjunction with the delivery of the
Pre-Closing Statement pursuant to Section 2.2(c), Sellers shall deliver to Buyer
a schedule setting forth a good faith allocation of the Preliminary Purchase
Price and the liabilities of the Company (plus other relevant items) in
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accordance with the provisions of Section 338(h)(10) of the Code and the
regulations thereunder. The parties shall file all Tax Returns (including
amended returns and claims for refund) and information reports and forms,
including IRS Form 8883, in a manner consistent with such allocation except as
otherwise required by applicable law (and shall likewise prepare financial
accounting reports in a manner consistent with such allocation); provided,
however, that appropriate adjustments in a manner consistent with said schedule
shall be made by the parties to reflect the Final Purchase Price (and any
indemnification payments hereunder). Any dispute with respect to such allocation
shall be settled by a nationally recognized accountant, mutually agreed upon by
Sellers and Buyer.
13.7 Cooperation on Tax Matters. Buyer, the Company and Sellers shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Company,
Sellers, and Buyer agree (i) to retain all books and records with respect to Tax
matters pertinent to the Company relating to any taxable period beginning before
the Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Seller, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any Taxing Authority, and (ii) to give the other party reasonable written
notice prior to transferring any such books or records, and if the other party
so requests, the Company or Sellers, as the case may be, shall allow the other
party to take possession of such books and records (to the extent they pertain
solely to the Company).
13.8 Tax Sharing Arrangements. Sellers and the Company will cause all Tax
sharing indemnification, allocation and similar agreements, if any, and all
powers of attorney with respect or related to Taxes or Tax Returns that involve
the Company to be terminated prior to the Closing Date and, after the Closing
Date, the Company will not be bound thereby or have any liability thereunder.
13.9 Transfer Taxes. Notwithstanding Section 12.1(b) and any other
provision of this Article XIII, the parties agree that all transfer,
documentary, sales, use, stamp, registration and other such taxes and fees
(including any penalties and interest thereon, "Transfer Taxes") incurred by the
Company in connection with this Agreement shall be borne by Buyer. Buyer shall
prepare at its own expense any Tax Returns relating to Transfer Taxes required
to be filed by Buyer, and, if required by applicable law, any other party hereto
will, and will cause its Affiliates to, join in the execution of any such Tax
Returns and other documentation required to be filed by Buyer. Sellers shall
cooperate with Buyer in filing any such Tax Return relating to Transfer Taxes.
13.10 Audits and Contests Regarding Taxes. (a) Any party hereto who
receives any notice of a pending or threatened Tax audit, assessment, or
adjustment relating to the Company, or Sellers with respect to the Company,
which may give rise to liability of another party hereto, shall promptly notify
Buyer and Sellers within ten (10) Business Days of the receipt of such notice
provided, however, that no failure or delay on the part of Buyer or the Company
lvi
to notify Sellers shall relieve Sellers of any liability or obligation under
this Agreement, except to the extent that Sellers are materially prejudiced as a
consequence of such failure. The parties hereto each agree to consult with and
to keep the other parties hereto informed on a regular basis regarding the
status of any Tax audit or proceeding to the extent that such audit or
proceeding could affect the liability of such other parties (including indemnity
obligations hereunder).
(b) Sellers shall have the right (but not the obligation) to represent the
Company's interests in (and control) any Tax audit or administrative or judicial
proceeding and to employ counsel of its choice, and at Sellers' expense, but
reasonably satisfactory to Buyer, but only to the extent such audit or other
proceeding pertains to taxable periods ending on or before the Closing Date.
Buyer shall have the right to participate in each such audit and proceeding at
its own expense, and shall be entitled to control the disposition of any issue
involved in such audit and proceeding which does not affect a potential
liability of any Seller. In the event that Sellers do not elect to control any
such audit or proceeding relating to a taxable period ending on or prior to the
Closing Date, Buyer shall represent the Company's interest (and control) such
audit or proceeding, at the expense of Seller, and Seller shall have the right
to participate in any such audit or proceeding, at its own expense.
(c) Buyer, on the one hand, and Sellers, on the other hand, shall be
entitled to represent their own respective interests in light of their
respective responsibilities (including indemnity obligations under this
Agreement) for Taxes, at their own expense, in any audit or administrative or
judicial proceedings involving a Straddle Period, provided that with respect to
any such period, no party hereto shall communicate with Representatives of an
auditing Taxing Authority on any substantive matter without advising all other
parties hereto of the communication in advance, and if oral, providing the other
parties hereto an adequate opportunity to participate in such communication.
(d) Notwithstanding anything in this Agreement to the contrary, Sellers
shall not agree to any settlement for any taxable period that could reasonably
be expected to affect Tax liabilities of Buyer or the Company for either (i) the
portion of any Straddle Period beginning after the Closing Date (determined in
accordance with the principles of Section 13.2) or (ii) any taxable period
beginning on or after the Closing Date, in each case, without prior written
consent of Buyer unless, in each case, Sellers indemnify Buyer for any net
increase in such Tax liabilities resulting from such settlement.
(e) Except as provided in this Section 13.10, the provisions of Article XII
including the provisions therein addressing settlement authority, shall govern
the manner in which Tax audit or administrative or judicial proceedings are
resolved.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Expenses. Buyer will bear its expenses incurred in connection with the
preparation, execution, and Buyer's performance under this Agreement and of the
transactions contemplated herein, including all fees and expenses of Buyer's
lvii
agents, Representatives, counsel, and accountants. Notwithstanding Section 6.3
of this Agreement, Sellers or the Company shall pay all expenses of the Company
and Sellers incurred in connection with the preparation, execution and Sellers'
and the Company's performance under this Agreement and of the transactions
contemplated herein, including all fees and expenses of their agents,
Representatives, counsel and accountants.
14.2 Public Announcements. Prior to the Closing Date, any public
announcement or similar publicity with respect to this Agreement or the
transactions contemplated herein will be issued, if at all, at such time and in
such manner as Buyer and the Company shall reasonably determine. The Company and
Buyer will consult with each other concerning the means by which the public and
the Company's employees, distributors, customers, and suppliers and others
having dealings with the Company will be informed of the transactions
contemplated herein and, prior to the Closing Date, no announcement shall be
made by any party without the prior written consent of the other parties, which
consent shall not be unreasonably withheld or delayed, except as may be required
by Legal Requirement, in which case the party proposing to make such
announcement shall use its reasonable best efforts to consult in good faith with
the other party before making such announcement.
14.3 Confidentiality. Buyer shall keep all non-public information obtained
pursuant to this Agreement confidential in accordance with the terms of the
Confidentiality Agreement between the Company and Buyer dated December 8, 2006
(the "Confidentiality Agreement"). The Confidentiality Agreement shall continue
in full force and effect prior to Closing (at which time it will terminate) and
after any termination of this Agreement. Anything contained in the
Confidentiality Agreement to the contrary notwithstanding, the parties hereby
agree that each such party may issue press release(s) or make other public
announcements only in accordance with Section 14.2.
14.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when: (a) delivered by hand (with written confirmation of receipt), (b)
sent by facsimile (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to the Company: With a copy to:
----------------- --------------
MYER-EMCO, INC. Xxxxx & Xxxxxxx L.L.P.
000 Xxxxxx Xxxx Xxxxx 000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxxxx XX 00000 Xxxxxxxxxx XX, 00000
Fax: [intentionally omitted] Fax: [intentionally omitted]
Attention: Chief Executive Officer Attention: Xxxxxxx Xxxxxxxx, Esq.
and Xxxxxx X. Xxxxxxxx, Esq.
and to each Seller at the address set forth on Schedule 3.3(a) with a copy to
Xxxxx & Xxxxxxx L.L.P. (set forth above); or at such other address as Company or
Sellers may designate by advance written notice to the other parties hereto; and
lviii
If to Buyer: With a copy to:
----------- --------------
XXXXXX ELECTRONICS, INC. XXXX XXXXX LLP
000 Xxxxx Xxxxxx 000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000 29th Floor
Fax: [intentionally omitted] Xxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxx Fax: [intentionally omitted]
Attention: Xxxxxx X. XxXxxxx, Esq.
or at such other address as Buyer may designate by advance written notice to the
other parties hereto.
14.5 Jurisdiction; Service of Process. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties in the courts of the State of New
York, County of New York, or, if it has or can acquire jurisdiction, in the
United States District Court for the Southern District of New York, and each of
the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
14.6 Further Assurances. The parties agree before and after Closing Date:
(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.
14.7 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.
14.8 Entire Agreement. This Agreement supersedes all prior agreements
between the parties with respect to its subject matter (other than the
Confidentiality Agreement, which shall survive the execution and/or termination
of this Agreement in accordance with its terms) and constitutes (along with the
documents referred to in this Agreement and the Confidentiality Agreement) a
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complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter.
14.9 Disclosure Schedules. If and to the extent any information required to
be furnished in any Disclosure Schedule is contained in another Disclosure
Schedule, such information will be deemed to be included in all Disclosure
Schedules in which such information is required to be included, to the extent
the relevance of such disclosure to such other Disclosure Schedules is
reasonably apparent on its face.
14.10 Assignments, Successors, and No Third-Party Rights. No party may
assign any of its rights under this Agreement without the prior consent of the
other parties hereto; provided that Buyer may, without the consent of any other
party, assign all or any portion of its rights hereunder to: (a) any of its
Affiliates; (b) to any acquiror of substantially all of the assets of Buyer or
any Affiliates of such acquiror; and/or (c) for collateral security purposes, to
any lenders of Buyer or any of its Affiliates. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the 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 the parties to this Agreement and their
successors and assigns.
14.11 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.
14.12 Article and 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 "Article", "Articles",
"Section" or "Sections" refer to the corresponding Article, Articles, 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.
14.13 Time of Essence. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
14.14 Governing Law. This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.
14.15 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.
14.16 Conflicts. If Sellers so desire, and without the need for any consent
or waiver by the Company or Buyer, Xxxxx & Xxxxxxx L.L.P. ("H&H") shall be
permitted to represent Sellers after the Closing Date in connection with any
matter, including without limitation anything related to the transactions
lx
contemplated by this Agreement, any other agreements referenced herein or any
disagreement or dispute relating thereto. Without limiting the generality of the
foregoing, after the Closing Date, H&H shall be permitted to represent Sellers,
any of their Representatives and Affiliates, or any one or more of them, in
connection with any negotiation, transaction or dispute ("dispute" includes
litigation, arbitration or other adversary proceeding) with the Company, Buyer
or any of their Representatives or Affiliates under or relating to this
Agreement, any transaction contemplated by this Agreement, and any related
matter, such as claims or disputes arising under other agreements entered into
in connection with this Agreement. Upon and after the Closing Date, the Company
shall cease to have any attorney-client relationship with H&H, unless and to the
extent H&H is specifically engaged in writing by the Company to represent the
Company after Closing Date and either such engagement involves no conflict of
interest with respect to Sellers, or Sellers consent in writing at the time to
such engagement. Any such representation of the Company by H&H after the Closing
Date shall not affect the foregoing provisions hereof. For example, and not by
way of limitation, even if H&H is representing the Company after the Closing
Date, H&H shall be permitted simultaneously to represent Sellers in any matter,
including any disagreement or dispute relating hereto. Furthermore, H&H shall be
permitted to withdraw from any representation of the Company in order to be able
to represent or continue so representing Sellers, even if such withdrawal causes
the Company or Buyer additional legal expense (such as to bring new counsel "up
to speed"), delay or other prejudice.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
lxi
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
MYER-EMCO, INC.
XXXXXX ELECTRONICS, INC.
By: /s/Xxxxx Xxxxxx Xxxxxxxxx
----------------------------
Name: Xxxxx Xxxxxx Xxxxxxxxx
By: /s/ Xxxxxxxx X. Xxxxx Title: Chairman
-----------------------------
Name: Xxxxxxxx X. Xxxxx
Title: Chief Executive Officer
/s/ Xxxxxxxx X. Xxxxx
XXXXXXXX X. XXXXX, individually
Address: [intentionally omitted]
/s/ Xxxxxx X. Xxxxx
XXXXXX X. XXXXX, individually
Address: [intentionally omitted]
lxii
EXHIBITS
[Each of the exhibits to this Agreement has been intentionally omitted]
Exhibit A Management Employment Agreement
Exhibit B Buyer's Required Consents
Exhibit C Tyson's Corner Lease
Exhibit D Xx Xxxxx Release
Exhibit E Yacoubian Release
Exhibit F Form of Xxxxx & Xxxxxxx L.L.P. Opinion
Exhibit G Form of Escrow Agreement
Exhibit H Example of Working Capital Calculation
lxiii
COMPANY AND SELLERS DISCLOSURE SCHEDULE
[Intentionally omitted]
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