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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AND MERGER
among
XXXXXX XXXXX & ASSOCIATES, INC.,
DECISION-SCIENCE APPLICATIONS, INC.
DSA ACQUISITION, INC.
and
XXX X. XXXXXXXX
AND
XXXX XXXXX
Dated as of July 22, 1998
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TABLE OF CONTENTS
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1. THE MERGER......................................................................... 1
1.1 Merger...................................................................... 1
1.2 Effective Time of Merger.................................................... 2
1.3 Articles of Incorporation, Bylaws and Board of Directors of Surviving
Corporation................................................................. 2
1.4 Effect of Merger............................................................ 2
1.5 Reorganization.............................................................. 3
2. CONVERSION AND EXCHANGE OF STOCK................................................... 3
2.1 Merger Consideration........................................................ 3
2.2 Conversion of Capital Stock of the Company.................................. 3
2.3 Capital Stock of Newco...................................................... 3
2.4 Options..................................................................... 3
2.5 Dissenting Shares........................................................... 3
2.6 Fractional Shares........................................................... 4
2.7 Escrow of Shares............................................................ 4
2.8 Exchange of Certificates.................................................... 4
3. CLOSING............................................................................ 5
3.1 Closing..................................................................... 5
3.2 Closing Deliveries.......................................................... 5
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... 7
4.1 Due Organization............................................................ 7
4.2 Authorization; No Conflicts................................................. 7
4.3 Capital Stock............................................................... 8
4.4 Transactions in Capital Stock and Spin-offs................................. 8
4.5 No Bonus Shares............................................................. 8
4.6 Subsidiaries................................................................ 8
4.7 SM&A Stock Ownership........................................................ 9
4.8 Financial Statements........................................................ 9
4.9 Liabilities and Obligations................................................. 9
4.10 Approvals................................................................... 9
4.11 Accounts and Notes Receivable............................................... 9
4.12 Intellectual Property....................................................... 10
4.13 Permits..................................................................... 10
4.14 Real and Personal Property.................................................. 10
4.15 Material Contracts and Commitments.......................................... 11
4.16 Insurance................................................................... 12
4.17 Employees, Consultants, Etc................................................. 12
4.18 Benefit Plans; ERISA Compliance............................................. 13
4.19 Conformity with Law; Pending or Threatened Claims........................... 17
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4.20 Taxes....................................................................... 17
4.21 Government Contracts........................................................ 18
4.22 Absence of Changes.......................................................... 18
4.23 Deposit Accounts; Powers of Attorney........................................ 20
4.24 Relations with Governments.................................................. 20
4.25 Conflicts of Interest....................................................... 20
4.26 Environmental Matters....................................................... 21
4.27 Future Plans and Commitments................................................ 21
4.28 The Private Placement Memorandum............................................ 21
4.29 Disclosure.................................................................. 21
5. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS....................... 22
5.1 Authorization; No Conflicts................................................. 22
5.2 Title to Company Stock...................................................... 22
6. REPRESENTATIONS AND WARRANTIES OF SM&A............................................. 22
6.1 Organization and Standing................................................... 22
6.2 Authorization and Binding Obligation........................................ 22
6.3 No Conflicts................................................................ 23
6.4 Approvals................................................................... 23
6.5 Litigation and Administrative Proceedings................................... 23
6.6 SM&A Stock Issued in Merger................................................. 23
6.7 NASDAQ National Market Listing.............................................. 24
6.8 Taxes....................................................................... 24
6.9 SEC Documents............................................................... 24
6.10 Subsidiaries................................................................ 25
6.11 Financial Statements........................................................ 25
6.12 Permits..................................................................... 25
6.13 Conformity with Law; Pending or Threatened Claims........................... 25
7. COVENANTS.......................................................................... 26
7.1 Access and Cooperation...................................................... 26
7.2 Conduct of Business Pending Closing......................................... 26
7.3 Prohibited Activities....................................................... 27
7.4 [Reserved].................................................................. 28
7.5 Release by Principal Shareholders........................................... 28
7.6 No Shop..................................................................... 28
7.7 Options..................................................................... 28
7.8 Conduct of Regulation D Offering............................................ 28
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND
THE PRINCIPAL SHAREHOLDERS......................................................... 28
8.1 Representations and Warranties; Performance of Obligations.................. 29
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8.2 Counsel Approval............................................................ 29
8.3 No Litigation............................................................... 29
8.4 No Material Adverse Change.................................................. 29
8.5 Opinion of Counsel.......................................................... 29
8.6 Consents and Approvals...................................................... 29
8.8 Additional Contracts........................................................ 30
8.9 Good Standing Certificates.................................................. 30
8.10 Securities Compliance....................................................... 30
8.11 Tax Opinion................................................................. 30
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SM&A AND NEWCO.............................. 30
9.1 Representations and Warranties; Performance of Obligations.................. 30
9.2 No Litigation............................................................... 30
9.3 Examination of Financial Statements......................................... 30
9.4 No Material Adverse Change.................................................. 31
9.5 Review...................................................................... 31
9.6 Counsel Approval............................................................ 31
9.7 Opinion of Counsel.......................................................... 31
9.8 Consents and Approvals...................................................... 31
9.9 Additional Liabilities and Obligations...................................... 31
9.10 Additional Contracts........................................................ 31
9.11 Good Standing Certificates.................................................. 32
9.12 Securities Compliance....................................................... 32
9.13 Termination of the Company Stock Option Plan................................ 32
9.14 Options..................................................................... 32
9.15 Dissenters' Rights.......................................................... 32
9.16 Compliance With Regulation D and Rule 144................................... 32
10. INDEMNIFICATION.................................................................... 32
10.1 Survival.................................................................... 32
10.2 Indemnification by Shareholders............................................. 33
10.3 Indemnification by SM&A..................................................... 33
10.4 Indemnification Procedures.................................................. 33
11. NONCOMPETITION..................................................................... 35
11.1 Prohibited Activities of the Principal Shareholders......................... 35
11.2 Prohibited Activities of SM&A and Newco..................................... 35
11.3 Acknowledgments............................................................. 35
11.4 Independent Covenant........................................................ 36
12. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON
SM&A STOCK; REGISTRATION RIGHTS.................................................... 36
12.1 Regulation D................................................................ 36
12.2 Registration Rights Agreement; Registration Efforts......................... 36
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12.3 Form 8-K.................................................................... 36
12.4 Legend...................................................................... 37
13. CERTAIN DEFINITIONS................................................................ 37
13.1 "Affiliate"................................................................. 37
13.2 "Average Closing Price for the Base Period"................................. 37
13.3 "Cash Consideration"........................................................ 37
13.4 "Cash Exchange Amount"...................................................... 37
13.5 "Cash Out".................................................................. 37
13.6 "Cash Out Amount"........................................................... 37
13.7 "Company Options"........................................................... 37
13.8 "Company Stock"............................................................. 37
13.9 "Dissenters' Rights"........................................................ 37
13.10 "Encumbrances".............................................................. 38
13.11 "Exchange Act".............................................................. 38
13.12 "GAAP"...................................................................... 38
13.13 "Government Authority"...................................................... 38
13.14 "Knowledge"................................................................. 38
13.15 "Legal Requirement"......................................................... 38
13.16 "Material Adverse Effect"................................................... 38
13.17 "Outstanding Common Shares"................................................. 38
13.18 "Person".................................................................... 38
13.19 "Private Placement Memorandum".............................................. 39
13.20 "Purchase Price Adjustment Amount".......................................... 39
13.21 "Regulation D".............................................................. 39
13.22 "SEC"....................................................................... 39
13.23 "Securities Act"............................................................ 39
13.24 "Share Consideration"....................................................... 39
13.25 "Share Exchange Ratio"...................................................... 39
13.26 "SM&A Stock"................................................................ 39
13.27 "Technology"................................................................ 39
14. TERMINATION........................................................................ 39
14.1 Circumstances of Termination................................................ 39
14.2 Termination Fee............................................................. 40
14.3 Effect of Termination....................................................... 41
15. GENERAL............................................................................ 41
15.1 Cooperation................................................................. 41
15.2 Successors and Assigns...................................................... 41
15.3 Entire Agreement............................................................ 41
15.4 Counterparts................................................................ 41
15.5 Brokers and Agents.......................................................... 41
15.6 Payment of Expenses......................................................... 42
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15.7 Attorney's Fees, Prevailing Party........................................... 42
15.8 Notices..................................................................... 42
15.9 Governing Law............................................................... 43
15.10 Exercise of Rights and Remedies............................................. 43
15.11 Reformation and Severability................................................ 43
15.12 General Terms............................................................... 43
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the "Agreement")
is made as of the 22nd day of July, 1998, among XXXXXX XXXXX & ASSOCIATES, INC.,
a California corporation ("SM&A"); DECISION-SCIENCE APPLICATIONS, INC., a
Virginia corporation (the "Company"); DSA ACQUISITION, INC., a California
corporation ("Newco"); and XXX X. XXXXXXXX and XXXX X. XXXXX (each a "Principal
Shareholder" and collectively the "Principal Shareholders").
WHEREAS, Newco has been duly organized and is currently existing under
the laws of the State of California, having been incorporated solely for the
purpose of completing the transactions contemplated hereby, and is a
wholly-owned subsidiary of SM&A; and
WHEREAS, the Principal Shareholders are the record owners of an
aggregate of 37,373 shares of common stock of the Company; and
WHEREAS, the Company owns all the issued and outstanding capital stock
of DSA Systems, Inc., a Virginia corporation (the "Subsidiary"); and
WHEREAS, the respective Boards of Directors of SM&A, Newco and the
Company (all of which companies are hereinafter collectively referred to as the
"Constituent Corporations") deem it advisable and in the best interests of each
of the Constituent Corporations and their respective stockholders that the
Company merge with and into Newco (the "Merger") pursuant to the applicable
provisions of the laws of the State of California and of the Commonwealth of
Virginia (the "Corporate Statutes"), and on the terms and subject to the
conditions set forth in this Agreement, the Agreement of Merger attached hereto
as Exhibit 0.1 and the Articles of Merger attached hereto as Exhibit 0.2; and
WHEREAS, the Board of Directors of each of the Constituent Corporations
has approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth below, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. THE MERGER.
1.1 Merger. In accordance with the terms and subject to the conditions
of this Agreement, the Agreement of Merger and the Articles of Merger, and
pursuant to the Corporate Statutes, at the Effective Time (as defined in Section
1.2 below), the Company shall be merged with and into Newco (herein referred to
as the "Surviving Corporation" whenever reference is made to it at or after the
Effective Time), all outstanding shares of the capital stock of the Company
shall be converted into and become a right to receive shares of the capital
stock of the
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SM&A and other consideration in accordance with Article 2 below, and the
separate existence of the Company shall cease in accordance with Section 1.4
below.
1.2 Effective Time of Merger. At or before the Closing Date (as defined
in Section 3.1), Newco and the Company shall execute the Agreement of Merger and
Articles of Merger in substantially the form attached hereto as Exhibit 0.1 and
Exhibit 0.2, respectively, which shall be filed with the Secretary of State of
the State of California and the State Corporation Commission of the Commonwealth
of Virginia on the Closing Date. The Merger shall become effective upon the
filing and recordation of the Agreement of Merger with the Secretary of State of
California and the filing and recordation of the Articles of Merger with the
State Corporation Commission of the Commonwealth of Virginia (the "Effective
Time").
1.3 Articles of Incorporation, Bylaws and Board of Directors of
Surviving Corporation. At the Effective Time:
(a) The Articles of Incorporation of Newco shall be amended and
restated to read as set forth in Exhibit 1.3 hereto, and such Articles
of Incorporation, as amended and restated, shall be the Articles of
Incorporation of the Surviving Corporation.
(b) The Bylaws of Newco shall be the Bylaws of the Surviving
Corporation.
(c) Xxxxxxx X. Xxxxxxxx, the sole director of Newco, shall be the
sole director of the Surviving Corporation. Such director shall hold
office subject to the laws of the State of California and the provisions
of the Articles of Incorporation and Bylaws of the Surviving
Corporation.
(d) The officers of the Surviving Corporation shall be as
follows: President -Xxxxxxx X. Xxxxxxxx; Chief Financial Officer and
Secretary - Xxxxxx X. Xxxx.
1.4 Effect of Merger. The Merger shall have the effects set forth in
this Agreement, the Agreement of Merger, the Articles of Merger and the
Corporate Statutes. Except as specifically set forth to the contrary in the
Corporate Statutes, the Agreement of Merger, the Articles of Merger or in this
Agreement, the identity, existence, purposes, powers, objects, franchises,
privileges, rights and immunities of Newco shall continue unaffected and
unimpaired by the Merger and the corporate franchises, existence and rights of
the Company shall be merged into Newco, and Newco, as the Surviving Corporation,
shall be fully vested therewith; at the Effective Time, the separate existence
of the Company shall cease and, in accordance with and subject to the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public, as well as of a private
nature; and all property and all debts due on whatever account, including
subscriptions to shares and all and every other interest of or belonging to or
due to Newco or the Company shall be allocated to, and vested in, the Surviving
Corporation without further act or deed and without any transfer or assignment
having occurred; and all property, rights, privileges, powers, licenses and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State of California and the Commonwealth of
Virginia,
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shall not revert or be in any way impaired by reason of the Merger. The
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against it to the same extent as if
said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
1.5 Reorganization. The parties intend to adopt this Agreement as a plan
of reorganization and to consummate the Merger in accordance with Section 368(a)
of the Code.
2. CONVERSION AND EXCHANGE OF STOCK.
2.1 Merger Consideration. The aggregate consideration to be paid in the
Merger (the "Merger Consideration") shall equal the sum of (i) the Share
Consideration and (ii) the Cash Consideration.
2.2 Conversion of Capital Stock of the Company. At the Effective Time,
by virtue of the Merger and without any action on the part of SM&A, the Company
or any holder of shares of Company Stock:
(a) each Outstanding Company Share, other than Dissenting Shares
(as hereinafter defined), shall automatically be converted into and
become a right to receive (i) that number of shares of SM&A Stock equal
to the Share Exchange Ratio and (ii) cash in an amount equal to the Cash
Exchange Amount;
(b) all shares of Company Stock held immediately prior to the
Effective Time by the Company as treasury stock or by a subsidiary of
the Company shall be cancelled and no Merger Consideration shall be paid
with respect thereto; and
(c) all Dissenting Shares shall be treated in accordance with
Section 2.5 below.
2.3 Capital Stock of Newco. Each share of capital stock of Newco issued
and outstanding as of the Effective Time shall be unaffected by the Merger.
2.4 Options. Each Company Option shall be exercised or cancelled prior
to the Closing (as hereinafter defined). Some of the holders of Company Options
will participate in the Cash Out and their Company Options will be cancelled in
exchange for a portion of the Cash Out Amount. Those Company Options that are
not cancelled in the Cash Out will vest upon consummation of the Merger and the
holders thereof will receive a portion of the Merger Consideration for those
shares of Common Stock issuable pursuant to such Company Options less the
aggregate exercise price of such Company Options.
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2.5 Dissenting Shares.
(a) Shares of Company Stock held by a shareholder who has
properly exercised dissenters' rights with respect thereto
(collectively, the "Dissenting Shares") in accordance with Section
13.1-729, et seq. of the Virginia Code, or any successor provision (the
"Dissenters Law"), shall not have a right to receive any Merger
Consideration with respect thereto. At the Effective Time, any holder of
Dissenting Shares shall cease to have any rights with respect thereto,
except the rights provided in the Dissenters Law.
(b) The Company shall give SM&A (i) prompt notice of any written
demands under the Dissenters Law with respect to any shares of Company
Stock, any withdrawal of any such demands and any other instruments
served pursuant to the Dissenters Law and received by the Company, and
(ii) the right to participate in all negotiations and proceedings with
respect to any demands under the Dissenters Law with respect to any
shares of Company Stock. The Company shall cooperate with SM&A
concerning, and shall not, except with the prior written consent of
SM&A, voluntarily make any payment with respect to, or offer to settle
or settle, any such demands; provided, however, that SM&A shall in no
way hinder or prevent the Company from complying with the Company's
obligations under the Dissenters Law.
2.6 Fractional Shares. Notwithstanding anything herein, with respect to
each holder of Company Stock, if the aggregate number of shares of SM&A Stock
collectively issuable to such holder for conversion of all of such holder's
Company Stock pursuant to Section 2.2 includes a fractional share, such
fractional share shall be rounded to the nearest whole number.
2.7 Escrow of Shares. At the Effective Time, SM&A shall deposit
twenty-five percent (25%) of the shares of SM&A Stock otherwise issuable to the
holders of Company Stock pursuant to Section 2.2(a) (the "Escrow Shares") in
escrow for a period of two (2) years (the "Escrow Period") as the source of
payment for the indemnification obligations of the shareholders of the Company
pursuant to Article 10 below. The Escrow Shares shall be held and disbursed
pursuant to the terms of this Agreement and an escrow agreement in substantially
the form attached hereto as Exhibit 2.7 (the "Escrow Agreement"). The Escrow
Shares shall be determined pro rata based on the SM&A Stock allocable to each
former holder of Company Stock. Notwithstanding anything in this Section 2.7 to
the contrary and as shall be provided in the Escrow Agreement, in the event
that, during the Escrow Period, the average of the closing prices of SM&A Stock
on the NASDAQ National Market (or such other national stock exchange on which
SM&A Stock is listed) for any twenty (20) consecutive trading days is $5.00
below the Average Closing Price for the Base Period, the Escrow Shares may be
sold for cash (subject to the requirements of federal and state securities
laws), and the cash proceeds from any such sale shall be substituted for such
Escrow Shares as and when sold and placed into escrow.
2.8 Exchange of Certificates.
(a) The conversion of shares of Company Stock into the right to
receive the Merger Consideration, as provided for by this Agreement,
shall occur automatically at the Effective Time without further action
by the holders thereof. SM&A or its transfer agent
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shall, within fifteen (15) business days after the Effective Time, mail
to all former holders of record of shares of Company Stock instructions
for surrendering their certificates representing such shares of Company
Stock in exchange for a certificate representing shares of SM&A Stock as
part of the Merger Consideration. Within fifteen (15) business days
following such surrender, SM&A or its transfer agent shall mail to each
such holder in exchange therefor (subject to the escrow deposit required
by Section 2.7) a certificate representing the shares of SM&A Stock into
which such shares have been converted as part of the Merger
Consideration pursuant to the provisions of this Agreement. Until
surrendered, each certificate that prior to the Effective Time
represented shares of Company Stock will be deemed to evidence the right
to receive the number of shares of SM&A Stock into which such shares of
Company Stock has been converted in accordance with Section 2.2.
(b) The shares of SM&A Stock into which shares of Company Stock
shall be converted in the Merger as part of the Merger Consideration
shall be deemed to have been issued at the Effective Time. If any
certificate for shares of SM&A Stock is to be issued in a name other
than that in which the certificate for shares of Company Stock
surrendered is registered, it shall be a condition of such exchange that
the person requesting such exchange shall deliver to SM&A's transfer
agent all documents necessary to evidence and effect such transfer and
shall pay to the transfer agent any transfer or other taxes required by
reason of the issuance of certificates for such shares of SM&A Stock in
a name other than that of the registered holder of the certificates
surrendered or to establish to the reasonable satisfaction of the
transfer agent that such tax has been paid or is not applicable.
3. CLOSING.
3.1 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Xxxxx & Xxxxxx, LLP, 000 Xxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxx
Xxxx, Xxxxxxxxxx, before the close of business on the later of (a) the day after
all of the conditions to the Closing set forth in Articles 8 and 9 have been
satisfied or waived in writing, or (b) September 15, 1998, or at such other
place, time and date as the parties hereto mutually may agree (the "Closing
Date").
3.2 Closing Deliveries. At the Closing, the parties shall have delivered
to each other the following closing documents and agreements, and taken the
following actions:
(a) Documents and agreements delivered by or on behalf of each
Principal Shareholder and/or the Company, as the case may be, to SM&A:
(i) a duly executed copy of the Escrow Agreement;
(ii) a duly executed copy of the Agreement of Merger;
(iii) a duly executed copy of the Articles of Merger;
(iv) a duly executed copy of the Registration Rights
Agreement (as hereinafter defined);
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(v) such certificates of the Company and/or the
Principal Shareholders as required by Article 9;
(vi) an opinion of counsel for the Company,
substantially in the form attached hereto as Exhibit 3.2(a)(vi);
(vii) duly executed copies of Employment Agreements,
including noncompetition provisions, between the Surviving
Corporation and Xxx X. Xxxxxxxx, Xxxxx X. Xxxxxxx, Xxxxx X.
Xxxxxxx, Xxxx X. Xxxxx and Xxxx X. Xxxxxxxx, substantially in
the form attached hereto as Exhibit 3.2(a)(vii) (each an
"Employment Agreement");
(viii) certificates of Good Standing and Existence of
the Company and the Subsidiary issued by the State Corporation
Commission of the Commonwealth of Virginia and for each other
jurisdiction where the Company and the Subsidiary are qualified
to do business;
(ix) a power of attorney duly executed by each Company
shareholder who has authorized a person to execute the Escrow
Agreement and Registration Rights Agreement on his behalf; and
(x) such other documents that may be reasonably
requested by SM&A.
(b) Documents and agreements delivered by or on behalf of SM&A
and/or Newco, as the case may be, to the Company and/or the Principal
Shareholders, as the case may be:
(i) a duly executed copy of the Escrow Agreement;
(ii) a duly executed copy of the Agreement of Merger;
(iii) a duly executed copy of the Articles of Merger;
(iv) a duly executed copy of the Registration Rights
Agreement;
(v) such certificates of SM&A and Newco as required by
Article 8;
(vi) an opinion of counsel for SM&A, substantially in
the form attached hereto as Exhibit 3.2(b)(vi);
(vii) duly executed copies of the Employment Agreements;
(viii) certificates of Good Standing and Existence of
SM&A and Newco issued by the Secretary of State of the State of
California; and
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(ix) such other documents that may be reasonably
requested by the Company.
(c) SM&A shall deliver to each shareholder of the Company the
Cash Consideration to which each shareholder is entitled pursuant to
Article 2 hereof, provided that each such shareholder delivers to SM&A
at the Closing a certificate or certificates representing shares of
Common Stock held by each such shareholder immediately prior to the
Effective Time, along with such instruments of transfer satisfactory to
SM&A.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants that all of the following
representations and warranties are true as of the date of this Agreement and
shall be true on the Closing Date:
4.1 Due Organization. Each of the Company and the Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia, and is duly authorized, qualified and licensed
under all applicable laws, regulations, ordinances and orders of Government
Authorities to own its properties and assets and to carry on its business in the
places and in the manner as it is now conducted, except (a) as disclosed on
Schedule 4.1-1 or (b) where the failure to be so authorized, qualified or
licensed would not, individually or in the aggregate, have a Material Adverse
Effect on the Company or the Subsidiary. True and correct copies of the Articles
of Incorporation (certified by the State Corporation Commission of the
Commonwealth of Virginia) and Bylaws (certified by the Secretary of the
Company), as each is amended, of each of the Company and the Subsidiary are
attached to Schedule 4.1-2. The stock records and minute books of the Company
and the Subsidiary, as heretofore made available to SM&A, are correct and
complete (in the case of the minute books, in all material respects).
4.2 Authorization; No Conflicts. The Company has the full legal right,
power and authority to enter into this Agreement, the Agreement of Merger, the
Articles of Merger and the Escrow Agreement, and to perform the transactions
contemplated herein and therein. The execution, delivery and performance of this
Agreement, the Agreement of Merger, the Articles of Merger, and the Escrow
Agreement, and the consummation of the transactions contemplated hereby and
thereby do not and will not (a) violate or conflict with any provision of each
of the Company's and Subsidiary's Articles of Incorporation or Bylaws, (b)
violate or conflict with any provision of, or be an event that is (or with the
passage of time will result in) a default or violation of, or result in the
modification, cancellation or acceleration of (whether after the giving of
notice or lapse of time or both) any obligation under, or result in the
imposition or creation of any Encumbrances upon any of the assets of each of the
Company and the Subsidiary pursuant to, any Contract (as defined in Section
4.15) to which the Company or the Subsidiary is a party or by which the Company
or the Subsidiary is bound, (c) violate or conflict with any Legal Requirement
applicable to either the Company or the Subsidiary or any of its properties or
assets or any other material restriction of any kind or character to which it is
subject, or (d) require any authorization, consent, order, permit or approval
of, or notice to, or filing, registration or qualification with, any Government
Authority, except as set forth on Schedule 4.10. The Company has received, or
will receive prior to the Closing, all necessary approvals from its Board of
Directors and shareholders to consummate the Merger. This Agreement has been
duly executed and delivered by the
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Company, and at the Closing the Agreement of Merger, the Articles of Merger, and
the Escrow Agreement, will be duly executed and delivered by the Company, and,
assuming the due execution and delivery hereof and thereof by SM&A and Newco,
respectively, this Agreement constitutes, and the Agreement of Merger, the
Articles of Merger, and the Escrow Agreement, will constitute, the legal, valid
and binding obligation of the Company, enforceable against it in accordance with
their terms, except as enforceability hereof and thereof may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and by the exercise of judicial discretion in
accordance with equitable principles.
4.3 Capital Stock. The authorized capital stock of the Company consists
solely of 1,000,000 shares of voting common stock, $.01 par value per share, of
which 107,589 shares are issued and outstanding and held of record by the
persons and in the amounts set forth on Schedule 4.3. The authorized capital
stock of the Subsidiary consists solely of 1,000 shares of voting capital stock,
of which 100 shares are issued and outstanding and all of which are owned by the
Company. All of the issued and outstanding shares of capital stock of the
Subsidiary are owned by the Company free and clear of Encumbrances. The issued
and outstanding shares of Company Stock and the issued and outstanding shares of
capital stock of the Subsidiary have been duly authorized and validly issued,
are fully paid and nonassessable, and such shares were offered, issued, sold and
delivered by the Company or the Subsidiary, as the case may be, in compliance
with all applicable state and federal securities laws except as set forth on
Schedule 4.3. Neither shares of the Company Stock nor shares of the Subsidiary
capital stock were issued in violation of the preemptive rights, if any, of any
past or present shareholder.
4.4 Transactions in Capital Stock and Spin-offs. Except as set forth on
Schedule 4.4, no right of first refusal, option, warrant, call, conversion right
or commitment of any kind exists with respect to any outstanding or authorized
but unissued capital stock of each of the Company and the Subsidiary. In
addition, except as set forth on Schedule 4.4 there are no (a) outstanding
securities or obligations that are convertible into or exchangeable for any
shares of the capital stock or other equity securities of each of the Company or
the Subsidiary, or (b) contracts, arrangements or commitments, written or
otherwise, under which the Company or the Subsidiary is or may become bound to
sell or otherwise issue any shares of its capital stock or any other equity
securities. Without limiting the generality of the foregoing, the Company has
done nothing to the Company's Knowledge which would form the basis upon which
any person (other than any shareholder identified as a record owner of Company
Stock on the Company's stock books, or spouse of a principal of a trust that is
such a shareholder) may claim to be in any way the record or beneficial owner
of, or to be entitled to acquire (of record or beneficially), any shares of the
capital stock or other equity securities of the Company or the Subsidiary. In
addition, neither the Company nor the Subsidiary has any obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof, and there has been no transaction or action
taken with respect to the equity ownership of the Company or Subsidiary in
contemplation of the transaction described in this Agreement, except as set
forth on Schedule 4.4. Except as set forth on Schedule 4.4, since January 31,
1998 there has not been any (a) issuance, sale, repurchase, redemption or other
transfer of or transaction in the Company Stock or the Subsidiary capital stock
or (b) any sale or spin-off of significant assets of the Company or Subsidiary,
in each case other than in the ordinary course of business.
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4.5 No Bonus Shares. Except as set forth on Schedule 4.5, none of the
shares of the Company Stock or the Subsidiary capital stock was issued for any
consideration other than cash.
4.6 Subsidiaries. Except for the Subsidiary and except as set forth on
Schedule 4.6, the Company does not presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity. Except as set forth on Schedule 4.6, each of the Company and
the Subsidiary is not, directly or indirectly, a participant in any joint
venture, partnership or other noncorporate entity.
4.7 SM&A Stock Ownership. Since January 29, 1998, the effective date of
SM&A's registration statement in respect of its initial public offering, neither
the Company, nor the Subsidiary has ever owned any shares of SM&A Stock.
4.8 Financial Statements. Copies of the following consolidated financial
statements (the "Financial Statements") of the Company are attached hereto as
Schedule 4.8:
(a) The Company's audited consolidated balance sheet as of
January 31, 1998 and for the two (2) prior years, and audited
consolidated statements of earnings, cash flows and stockholders' equity
for the year then ended and for the two (2) prior years; and
(b) The Company's unaudited consolidated balance sheet as of June
30, 1998 (hereinafter referred to as the "Balance Sheet Date") and
unaudited consolidated statements of earnings, cash flows and
stockholders' equity for the five-month period then ended.
The Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated. Such balance sheets present
fairly the financial condition of each of the Company and the Subsidiary as of
the dates indicated thereon, on a consolidated basis, and such statements of
earnings, cash flows and stockholders' equity present fairly the results of its
operations for the periods indicated thereon.
4.9 Liabilities and Obligations. Except as set forth on Schedule 4.4,
Schedule 4.8 and Schedule 4.9, each of the Company and the Subsidiary has no
liabilities or obligations of any nature (whether known or unknown, due or to
become due, absolute, accrued, contingent or otherwise, and whether or not
determined or determinable) and there is no existing condition, situation or set
of circumstances which could result in such a liability or obligation, except
for liabilities or obligations under any Contract disclosed on Schedule 4.15
hereto. For each such liability for which the amount is not fixed or is
contested, the Company has provided on Schedule 4.9 a summary description of the
liability. The Company's deferred Tax (as defined in Section 4.20) liability
immediately prior to the Effective Time shall not exceed $4,100,000.
4.10 Approvals. Except as set forth on Schedule 4.10, no authorization,
consent or approval of, or registration or filing with, any governmental
authority or any other person is or was required to be, and has not been,
obtained or made by the Company or the Subsidiary in connection with the
execution, delivery or performance of this Agreement.
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4.11 Accounts and Notes Receivable. Schedule 4.11 sets forth an accurate
list of the accounts and notes receivable of each of the Company and the
Subsidiary as of the Balance Sheet Date, including receivables from and advances
to the Subsidiary and the Company's employees and shareholders. Such list
includes an aging of all accounts and notes receivable as of the Balance Sheet
Date showing amounts due in thirty (30) day aging categories. Except as set
forth on Schedule 4.11, and subject to approximately $600,000 in U.S. government
hold-backs pending government contract audits, at least ninety percent (90%) of
the amount of all accounts receivable, unbilled invoices and other debts due or
recorded in the records and books of account of each of the Company and the
Subsidiary as being due to either the Company or the Subsidiary (as the case may
be) as at the date of this Agreement will be good, payable and collectible in
full in the ordinary course of business within one hundred fifty (150) days
after the Closing, net of applicable reserves as recorded on the Company's or
the Subsidiary's books on the date hereof; no contest with respect to the amount
or validity of any amount is pending; and none of such accounts receivable or
other debts is or will at the Closing be subject to any counterclaim or set-off.
The values at which accounts receivable are carried reflect the accounts
receivable valuation policy of the Company and the Subsidiary which is
consistent with GAAP applied on a consistent basis.
4.12 Intellectual Property. To the best Knowledge of the Company, the
Company and the Subsidiary owns or has valid, binding and enforceable rights to
use all patents, trademarks, trade names, service marks, service names,
copyrights, applications for any of the foregoing, and licenses or other rights
in respect of any of the foregoing ("Intellectual Property"), used or held for
use in connection with its business, without any conflict with the rights of
others. Neither the Company nor the Subsidiary has received any notice from any
other person pertaining to or challenging the right of the Company or the
Subsidiary to use any Intellectual Property or Technology owned or used by or
licensed to the Company or the Subsidiary. Other than in the ordinary course of
business, neither the Company nor the Subsidiary has granted any outstanding
licenses or other rights, and has no obligation to grant any licenses or other
rights, under, and the Shareholders of the Company and the employees of each of
the Company and the Subsidiary have no rights in or to, any of the Intellectual
Property or Technology owned or used by or licensed to the Company or the
Subsidiary. No claims have been made by each of the Company or the Subsidiary of
any violation or infringement by others of the rights of the Company or the
Subsidiary with respect to any Intellectual Property or Technology of the
Company or the Subsidiary, and the Company knows of no basis for the making of
any such claim.
The Company has delivered to SM&A on Schedule 4.12 a complete and
correct list and/or summary description of all material Intellectual Property
and Technology owned by, used by or licensed by each of the Company and the
Subsidiary.
4.13 Permits. Each of the Company and the Subsidiary owns or possesses
all franchises, licenses, permits, consents, approvals and authorizations
(collectively herein referred to as "Permits"), of any Government Authority
which are necessary for the conduct of its business as currently conducted. Each
of the foregoing is in full force and effect, and each of the Company and the
Subsidiary is in material compliance with all of its obligations with respect
thereto, and no event has occurred which permits, or upon the giving of notice
or lapse of time or otherwise would permit, revocation or termination of any of
the foregoing which would have a Material Adverse Effect upon the Company or the
Subsidiary.
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The Company has delivered to SM&A on Schedule 4.13 a complete and
correct list and/or summary description of all Permits held by each of the
Company and the Subsidiary.
4.14 Real and Personal Property.
(a) Schedule 4.14(a) contains an accurate list and/or
description of all real property leased by the Company and the
Subsidiary. Neither the Company nor Subsidiary owns, nor has it ever
owned, any real property.
(b) Schedule 4.14(b) contains an accurate list of all material
items of tangible personal property of every kind or description owned
or held by each of the Company and the Subsidiary, and leases or
licenses or other rights to possession thereof, and includes an
indication as to which assets were formerly or are currently owned by
business or personal affiliates of each of the Company and the
Subsidiary. All tangible personal property of each of the Company and
Subsidiary is in good operating condition and repair, ordinary wear and
tear excepted.
(c) Each of the Company and the Subsidiary has good and
marketable title to, or holds by valid lease or license (which lease or
license is in full force and effect and, to the best of the Company's
Knowledge, binding upon the parties (and their successors) thereto in
accordance with their respective terms), the property listed on Schedule
4.14(a) and Schedule 4.14(b), free and clear of all Encumbrances.
4.15 Material Contracts and Commitments. Schedule 4.15 sets forth a
list, complete and correct in all material respects, of the following material
oral, and an accurate list of the following material written contracts,
commitments and other agreements to which each of the Company and the Subsidiary
is a party or by which it or any of its properties is bound (herein collectively
referred to as the "Contracts"):
(a) agreements involving payments, individually or in the
aggregate, in excess of $50,000;
(b) joint venture or partnership agreements or limited liability
company agreements;
(c) loan agreements, indemnity or guaranty agreements, bonds,
mortgages, liens, pledges or other security agreements (without regard
to dollar amount involved);
(d) leases, licenses, options to purchase real or personal
property involving future obligations on the part of the Company which
aggregate in excess of $50,000, other than as set forth on Schedule
4.14(a);
(e) agreements relating to the purchase or acquisition, by
merger or otherwise, of a signification portion of the business assets
or securities of the Company or the Subsidiary by any other person or of
any other person by the Company or the Subsidiary (other than as
contemplated by this Agreement);
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18
(f) contracts upon which the Company or the Subsidiary is
substantially dependent or which are otherwise material to the Company
or the Subsidiary;
(g) agreements that limit or restrict the ability of the Company
or the Subsidiary to compete or otherwise to conduct its business in any
manner or place, or that contain covenants of any other person not to
compete with the Company or the Subsidiary;
(h) any agreement with any holder of securities of the Company or
the Subsidiary as such (including, without limitation, any agreement
containing an obligation to register any of such securities under any
federal or state securities laws);
(i) agreements with any labor union or association representing
any employee of the Company or the Subsidiary;
(j) agreements with or for the benefit of any affiliates,
shareholders, employees, consultants, officers or directors of the
Company or the Subsidiary providing for compensation or benefits
individually in excess of $60,000 annually, other than those set forth
on Schedule 4.17(a) and Schedule 4.17(b);
(k) agreements that require the Company or the Subsidiary to buy
or sell goods or services with respect to which there will be material
losses or will be costs and expenses materially in excess of expected
receipts;
(l) agreements not made in the ordinary course of business; and
(m) any other agreements, whether or not made in the ordinary
course of business, that are material to the Company or the Subsidiary.
The Company has delivered or made available for review by SM&A or its
representatives true and complete copies of the written Contracts. Each of the
Company and the Subsidiary has complied in all material respects with all
commitments and obligations pertaining to any such Contract, and is not in
material default under any such Contract and no notice of default has been
received, nor to the best of the Company's Knowledge is there any default on the
part of any other party to such Contract, or any intent of any such party to
attempt to terminate or amend any such Contract.
4.16 Insurance. Schedule 4.16 sets forth an accurate list of all
insurance policies carried by each of the Company and the Subsidiary, and the
Company has delivered to SM&A on Schedule 4.16 an accurate list of all insurance
loss runs or worker's compensation claims received during the past three (3)
policy years. Such insurance policies are currently in full force and effect and
shall remain in full force and effect through the Closing Date.
4.17 Employees, Consultants, Etc.
(a) Schedule 4.17(a) sets forth (i) an accurate and complete list
of (A) all officers and directors of each of the Company and the
Subsidiary, (B) all employees of the
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Company and the Subsidiary and (C) all consultants currently performing
services for the Company or the Subsidiary, and (ii) an accurate and
complete list of all independent contractors and other agents currently
performing services for each of the Company and the Subsidiary, setting
forth in each case the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of
the director, officer, employee, consultant, independent contractor and
agent.
(b) Schedule 4.17(b) sets forth a schedule, accurate and
complete, showing all employment agreements and any other agreements to
which each of the Company and the Subsidiary is a party or by which it
is bound, containing terms providing for (i) compensation or other
benefits or consequences upon the happening of a change of control of
each of the Company and the Subsidiary and (ii) deferred compensation;
together in each case with copies of such plans, agreements and any
trusts related thereto, and classifications of employees covered
thereby.
(c) Each of the Company and the Subsidiary has complied with the
verification requirements and the record keeping requirements of the
Immigration Reform and Control Act of 1986 ("IRCA") in all material
respects; to the best of the Company's Knowledge, the information and
documents on which each of the Company and the Subsidiary relied in
complying with IRCA are true and correct; and there have not been any
discrimination complaints filed against the Company or the Subsidiary
pursuant to IRCA.
(d) No employees of the Company or the Subsidiary are
represented by any labor union or covered by any collective bargaining
agreement nor, to the best of the Company's Knowledge, is any campaign
to establish such representation in progress.
(e) Neither the Company nor the Subsidiary has received or been
notified of any discrimination complaint filed by any employee,
applicant, union, or other party with any Government Authority.
(f) Each of the Company and the Subsidiary has filed all
required reports and information that were due prior to the Closing Date
and otherwise has complied with all material applicable regulatory
requirements within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and
state and local human rights and/or civil rights agencies.
(g) Neither the Company nor the Subsidiary has received written
notice of any intention by any of its employees to terminate his or her
employment or to seek a modification in the terms of his or her
employment, individually or collectively with other employees.
(h) Neither the Company nor the Subsidiary is aware that any
employee, officer or director is in violation of any obligation of
confidentiality to the Company or the Subsidiary.
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4.18 Benefit Plans; ERISA Compliance.
(a) Schedule 4.18 contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (sometimes referred to in
this Section 4.18 as "Pension Plans"), "employee welfare benefit plans"
(as defined in Section 3(1) of ERISA) (sometimes referred to in this
Section 4.18 as "Welfare Plans") and all other Benefit Plans, as defined
below, currently maintained in whole or in part, contributed to, or
required to be contributed to by each of the Company and the Subsidiary
for the benefit of any present or former officer, employee or director
of each of the Company and the Subsidiary. For purposes of this
Agreement, the term "Benefit Plan" shall mean any collective bargaining
agreement or any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical, dependent care, cafeteria, employee
assistance, scholarship or other plan, program, arrangement or
understanding (whether or not legally binding) maintained in whole or in
part, contributed to, or required to be contributed to by each of the
Company and the Subsidiary for the benefit of any present or former
officer, employee or director of each of the Company or the Subsidiary
which is not a Pension Plan or Welfare Plan. Each of the Company and the
Subsidiary has delivered to SM&A true, complete and correct copies of
(i) each Pension Plan, Welfare Plan and Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof) and all amendments
(none of which amendments will materially increase to costs of the
amended plan), (ii) the three annual reports on Form 5500 most recently
filed with the Internal Revenue Service (the "IRS") with respect to each
Pension Plan or Welfare Plan (if any such report was required), (iii)
the most recent IRS determination letter request for each Pension Plan
intended to be qualified under Section 401(a) of the Code and all
rulings or determinations concerning such Pension Plan requested of the
IRS subsequent to the date of that letter, (iv) the most recent
actuarial report for each Pension Plan and Welfare Plan for which an
actuarial report is required by ERISA, (v) the most recent summary plan
description for each Pension Plan and Welfare Plan for which such
summary plan description is required by ERISA and each summary of
material modifications prepared, as required by ERISA, after the last
summary plan description, (vi) each trust agreement and/or group annuity
contract relating to any Benefit Plan, and (vii) all other information
reasonably requested by SM&A.
(b) Each Pension Plan maintained and each pension plan formerly
maintained that is or was intended to be qualified under Section 401(a)
of the Code has been the subject of a determination letter from the IRS
to the effect that such plan is qualified under Section 401(a) of the
Code or can still be submitted in a timely manner to the IRS for such a
letter, and no such determination letter has been revoked nor has
revocation of any such letter been threatened, nor has any such plan
been amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification or materially increase its costs, and nothing has occurred
or failed to occur which would cause the loss of such qualification, and
all amendments required to be adopted before the Effective Time for any
such Pension Plan to continue to be so qualified have been or will be
duly and timely adopted; provided however, that to the extent that this
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representation applies to terminated pension plans, this representation
refers to the qualified status of any such plan through the time of its
termination. To the best Knowledge of the Company and the Subsidiary,
each of the Company and the Subsidiary has paid all premiums (including
any applicable interest, charges and penalties for late payment) due the
Pension Benefit Guaranty Corporation (the "PBGC") with respect to each
such Pension Plan for which premiums to the PBGC are required and no
such Pension Plan in whole or in part maintained by each of the Company
and the Subsidiary has been terminated or partially terminated under
circumstances which would result in liability to the PBGC.
(c) To the best Knowledge of the Company and the Subsidiary,
except as set forth on Schedule 4.18, each of the Pension Plan, Welfare
Plan and Benefit Plans sponsored by, and each of the benefit plans
formerly sponsored by, each of the Company and the Subsidiary: (i) has
been in substantial compliance with all reporting and disclosure
requirements of (x) Part 1 or Subtitle B of Title I of ERISA, if
applicable, or (y) other applicable law, (ii) has had the appropriate
required Form 5500 (or equivalent annual report) filed timely with the
appropriate governmental entity for each year of its existence, (iii)
has at all times complied with the bonding requirements of (x) Section
412 of ERISA, if applicable, or (y) other applicable law, (iv) has no
issue pending (other than the payment of benefits in the normal course)
nor any issue resolved adversely to the Company or the Subsidiary which
may subject the Company or the Subsidiary to the payment of penalty,
interest, tax or other obligation that can be expected to have a
Material Adverse Effect on the Company or the Subsidiary, nor is there
any basis for any imposition of any such liability, and (v) has been
maintained in all respects in compliance with the applicable
requirements of ERISA, the Code and other applicable law not otherwise
covered hereunder so as not to have any Material Adverse Effect on the
Company or the Subsidiary.
(d) All voluntary employee benefit associations maintained by
each of the Company and the Subsidiary and intended to be exempt from
federal income tax under Section 501(c)(9) of the Code have been
submitted to and approved as exempt from federal income tax under
Section 501(c)(9) of the Code by the IRS, and, to the best Knowledge of
the Company and the Subsidiary, nothing has occurred or failed to occur
which would cause the loss of such exemption.
(e) To the best Knowledge of the Company and the Subsidiary, the
execution of this Agreement or the consummation of the transactions
contemplated by this Agreement will not give rise to any, or trigger
any, change of control, severance or other similar provisions in any
Pension Plan, Welfare Plan or Benefit Plan. The consummation of any
transaction contemplated by this Agreement will not result in any (i)
payment (whether of severance pay or otherwise) becoming due from the
Company or the Subsidiary to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement; (ii) benefit under any Benefit Plan of the Company or the
Subsidiary being established or becoming accelerated, vested or payable;
or (iii) payment or series of payments by the Company or the Subsidiary,
directly or indirectly, to any
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person that would constitute a "parachute payment" within the meaning of
Section 280G of the Code.
(f) Each of the Company and the Subsidiary provides no material
post-retirement medical, health, disability or death protection coverage
or contributes to or maintains any employee welfare benefit plan which
provides for medical, health, disability or death benefit coverage
following termination of employment by any officer, director or employee
except as is required by Section 4980B(f) of the Code or other
applicable statute, nor has it made any representations, agreements,
covenants or commitments to provide that coverage.
(g) No Pension Plan or pension plan subject to Tile IV of ERISA
(i) that each of the Company and the Subsidiary maintains or maintained,
or (ii) to which each of the Company and the Subsidiary is or was
obligated to contribute, other than any such plan that is or was a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of
ERISA) had, as of its most recent annual valuation date, an "unfunded
benefit liability" (as such term is defined in Section 4001(a)(18) of
ERISA), based on actuarial assumptions which have been furnished to
SM&A. To the best Knowledge of the Company and the Subsidiary, none of
such plans subject to Section 302 of ERISA has an "accumulated funding
deficiency" (as such term is defined in Section 302 of ERISA), whether
or not waived. None of the Company, the Subsidiary, any officer of the
Company or the Subsidiary, or any of the Pension Plan or Welfare Plans
(including the Pension Plans and prior pension plans) which are subject
to ERISA, or any trusts created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as
such term is defined in Section 406, 407 or 408 of ERISA or Section 4975
of the Code) or any other breach of fiduciary responsibility that could
subject each of the Company and the Subsidiary or any officer of each of
the Company and the Subsidiary to the tax or penalty on prohibited
transactions imposed by such Section 4975 of the Code or to any
liability under ERISA which would have a Material Adverse Effect on the
Company or the Subsidiary. To the best Knowledge of the Company and the
Subsidiary, no "reportable event" (as that term is defined in Section
4043 of ERISA) with respect to which the thirty (30)-day notice
requirement has not been waived has occurred and is continuing with
respect to any such Pension Plan, other than as may arise as a result of
the consummation of the Merger. Neither the Company nor the Subsidiary
has suffered a "complete withdrawal" or a "partial withdrawal" (as such
terms are defined in Section 4203 and Section 4205, respectively, of
ERISA) since the effective date of such Sections 4203 and 4205 for which
each of the Company and the Subsidiary has any liability outstanding
that can be expected to have a Material Adverse Effect on the Company or
the Subsidiary.
(h) To the best Knowledge of the Company and the Subsidiary, with
respect to any Welfare Plan, (i) each such Welfare Plan that is a group
health plan, as such term is defined in Section 5000(b)(1) of the Code,
complies in all material respects with any applicable requirements of
Part 6 of Title I of ERISA and Section 4980B(f) of the Code and (ii)
each such Welfare Plan (including any such plan covering retirees or
other former employees) may be amended or terminated with respect to
health benefits without having
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a Material Adverse Effect on the Company or the Subsidiary on or at any
time after the Consummation Date.
(i) All contributions required by law or by a collective
bargaining or other agreement to be made under the Pension Plan, Welfare
Plan or Benefit Plans with respect to all periods through the Effective
Date of the Merger, including a pro rata share of contributions due for
the current plan year, will have been made by such date or provided for
by adequate reserves by each of the Company and the Subsidiary. No
changes in contribution rates or benefit levels have been implemented or
negotiated (but not yet implemented), with respect to any Pension Plan,
Welfare Plan or Benefit Plan since the date on which the information
provided in the attached schedule has been provided, and no such changes
are scheduled to occur.
(j) To the best Knowledge of the Company and the Subsidiary,
each of the Company and the Subsidiary has not and will not have any
liability or obligation for taxes, penalties, contributions, losses,
claims, damages, judgments, settlement costs, expenses, costs, or any
other liability or liabilities of any nature whatsoever arising out of
or in any manner relating to any Pension Plan, Welfare Plan or Benefit
Plan (including but not limited to employee benefit plans such as
foreign plans which are not subject to ERISA), that has been, or is,
contributed to by any entity, whether or not incorporated, which is
deemed to be under common control (as defined in Section 414 of the
Code), with the Company or the Subsidiary that can be expected to have a
Material Adverse Effect on the Company and the Subsidiary, except to the
extent they relate to benefits payable in the ordinary course.
(k) To the best Knowledge of the Company and the Subsidiary, each
of the Company and the Subsidiary has not violated any of the health
care continuation coverage requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") applicable to its employees
prior to the Effective Time of the Merger.
4.19 Conformity with Law; Pending or Threatened Claims. Each of the
Company and the Subsidiary has complied with, and each of the Company and the
Subsidiary is not in material default under, any law, rule, ordinance, ruling,
directive, or regulation or under any order, award, judgment or decree of any
court or federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over each of the
Company and the Subsidiary or any of its assets or its business, except where
the failure to so comply or the default thereunder would not have a Material
Adverse Effect on the Company or the Subsidiary. There are no claims, actions,
suits or proceedings, pending or, to the Knowledge of the Company threatened,
against or affecting the Company or the Subsidiary, at law or in equity, in any
court, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over each of the Company and the Subsidiary or its business and no
notice of any such claim, action, suit or proceeding, whether pending or
threatened, has been received.
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4.20 Taxes.
(a) Each of the Company and the Subsidiary has timely filed all
federal and other Tax Returns which are required to be filed; and except
as set forth in Schedule 4.20-1, there are no waivers or extensions of
the statute of limitations, audits or examinations in progress, judicial
proceedings, or claims against each of the Company and the Subsidiary
for Taxes (including penalties and interest) for any period or periods
prior to and including the Balance Sheet Date and no notice of any
claim, whether pending or threatened, for Taxes has been received and
not paid. Each of the Company and the Subsidiary is not a party to any
Tax allocation or sharing agreement (i.e., any agreement or arrangement
for the payment of Tax liabilities or payment for Tax benefits with
respect to a consolidated, combined or unitary Tax Return which includes
the Company and the Subsidiary); there are no requests for rulings in
respect of any Tax pending by each of the Company and the Subsidiary
with any tax authority; and no penalty or deficiency in respect of any
Taxes which has been assessed against the Company or the Subsidiary
remains unpaid. The amounts shown as accruals for Taxes on the financial
statements of the Company or the Subsidiary as of the Balance Sheet Date
delivered to SM&A as a part of Schedule 4.9 are sufficient for the
payment of all Taxes of all kinds (including penalties and interest) for
any time or arising or incurred in connection with periods on or before
the Closing Date and the Company has reserved an amount sufficient to
pay all such Taxes. Copies of Tax Returns and franchise tax returns of
each of the Company and the Subsidiary for its last three (3) fiscal
years, or such shorter period of time as it has existed, are attached
hereto as Schedule 4.20-2. For purposes of this Section 4.20, "Tax"
shall mean any United States or other federal, state, provincial, local
or foreign income, gross receipts, property, sales, goods and services
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, transfer or excise tax, or
any other tax, custom, duty, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or penalty,
imposed by any governmental authority, except that the term "Tax" is
specifically defined to exclude any Tax incurred by the Company directly
or indirectly as a result of the Merger failing to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. "Tax
Return" shall mean any return, report or similar statement required to
be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund,
amended return and declaration of estimated Tax.
(b) No shareholder of the Company is a foreign person subject to
withholding under Section 1445 of the Code and the regulations
promulgated thereunder, and certification to that effect will be
delivered to SM&A at the Closing.
(c) Each of the Company and the Subsidiary has complied in all
material respects with all applicable laws, rules and regulations
relating to information reporting with respect to payments made to third
parties and the withholding of and payment of withheld Taxes and has
timely withheld from employee wages and other payments and paid over to
the proper taxing authorities all amounts required to be so withheld and
paid over for all periods under all applicable laws or it has finally
resolved and fully satisfied any liability for any failure to comply
with any such matters.
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(d) There is no pending claim by any taxing authority in any
jurisdiction in which each of the Company and the Subsidiary does not
pay Taxes or file Tax Returns that the Company or the Subsidiary is
required to pay Taxes or file Tax Returns.
(e) Neither the Company nor the Subsidiary has made an election
under Section 341(f) of the Code.
(f) Neither the Company nor the Subsidiary has agreed nor is
required to make any adjustment under Section 481(a) of the Code.
4.21 Government Contracts. Each of the Company and the Subsidiary is not
now and in the last two (2) years has not been a party to any governmental
contracts subject to price redetermination or renegotiation, except as set forth
on Schedule 4.21.
4.22 Absence of Changes. Except as set forth on Schedule 4.22, since the
Balance Sheet Date, there has not been:
(a) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
each of the Company and the Subsidiary;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
each of the Company and the Subsidiary;
(c) any change in the authorized capital of each of the Company
and the Subsidiary or its securities outstanding or any grant by each of
the Company and the Subsidiary of any options, warrants, calls,
conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of each of the
Company and the Subsidiary, except as contemplated by this Agreement;
(e) any increase in the compensation, bonus, sales commissions,
fringe benefits or fee arrangement payable or to become payable by each
of the Company and the Subsidiary to any of its officers, directors,
shareholders, employees, consultants or agents, other than in the
ordinary course of business and consistent with past practice, or any
change in the method by which sales commissions are calculated and paid;
(f) any work interruptions, labor grievances or claims filed
materially adversely affecting the business or future prospects of each
of the Company and the Subsidiary;
(g) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of each of the Company and the
Subsidiary to any person, other than in the ordinary course of business
including, without limitation, the Principal Shareholders and their
respective affiliates;
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(h) any cancellation, or agreement to cancel, any material
indebtedness or other obligation owing to each of the Company and the
Subsidiary, including without limitation any indebtedness or obligation
of the Principal Shareholders or any affiliate thereof;
(i) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of each of the Company and the Subsidiary or
requiring consent of any party to the transfer and assignment of any
such assets, property or rights other than rights of SM&A;
(j) any purchase or acquisition, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets,
other than in the ordinary course of business and consistent with past
practice;
(k) any waiver of any material rights or claims of each of the
Company and the Subsidiary, other than in the ordinary course of
business and consistent with past practice and for fair value;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which each of the
Company and the Subsidiary is a party;
(m) any transaction by each of the Company and the Subsidiary
outside the ordinary course of its business; or
(n) any authorization, approval, agreement or commitment to do
any of the foregoing.
4.23 Deposit Accounts; Powers of Attorney. Schedule 4.23 contains an
accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which each of the
Company and the Subsidiary has accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account; and
(d) the name of each person authorized to draw thereon or have
access thereto.
Schedule 4.23 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from each of the
Company and the Subsidiary and a description of the terms of such power. Each
such power, if any, has been or will be canceled from and after the Closing
Date.
4.24 Relations with Governments. Neither the Company, the Subsidiary
nor, to the best of the Company's Knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or the Subsidiary, has
used any Company or the Subsidiary funds for
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improper or unlawful contributions, payments, gifts or entertainment, made any
improper or unlawful expenditures relating to political activity to domestic or
foreign government officials or others or accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.25 Conflicts of Interest. Except as disclosed in Schedule 4.25, during
the preceding two-year period, neither (a) any past or present officer or
director of the Company or the Subsidiary, nor (b) to the best of the Company's
Knowledge, any relative of any past or present officer or director of the
Company or the Subsidiary, nor (c) to the best of the Company's Knowledge, any
corporation, partnership, trust or other entity of which any such past or
present officer or director of the Company or the Subsidiary has a direct or
indirect interest or is a director, officer, shareholder, partner or trustee, is
or has ever been a party, directly or indirectly, to any transaction with the
Company or the Subsidiary, including without limitation any agreement or other
arrangement providing for the furnishing of services by or to the Company or the
Subsidiary or the rental of any property from or to the Company or the
Subsidiary, or otherwise requiring or contemplating any payments by or to the
Company or the Subsidiary. Except as disclosed in Schedule 4.25, neither any
present officer or director, nor, to the best of the Company's Knowledge, any
relative of any such officer or director, owns directly or indirectly any
interest in any corporation, firm, partnership, trust or other entity or
business which is a competitor, potential competitor, customer, client or
supplier of each of the Company and the Subsidiary or any related business.
4.26 Environmental Matters. Each of the Company and the Subsidiary and
all of its assets are in compliance with, and are not subject to any liability
under, applicable federal, state and local environmental and public or
occupational health or safety laws, regulations or codes or requirements
relating to manufacture, storage, transport, generation, use, treatment,
disposal or handling of pollutants, contaminants, hazardous or toxic wastes,
substances, or materials, except where the failure to so comply or the liability
thereunder would not have a Material Adverse Effect on the Company or the
Subsidiary.
4.27 Future Plans and Commitments. Schedule 4.27 contains a summary
description of all plans or projects involving the opening of new operations,
expansion of any existing operations or the acquisition of any real or personal
property or existing business, to which each of the Company and the Subsidiary
has committed any material funds in the two (2) year period prior to the date of
this Agreement, which if pursued by the Company or the Subsidiary would require
additional expenditures of significant efforts or capital.
4.28 The Private Placement Memorandum. The information supplied by each
of the Company and the Subsidiary for inclusion in the Private Placement
Memorandum relating to the Merger to be sent to shareholders of the Company will
not, on the date the Private Placement Memorandum (or any amendment thereof or
supplement thereto) is first mailed to shareholders of the Company, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statement made therein not false or misleading. If at any time
prior to the Effective Time any event relating to each of the Company, the
Subsidiary or any of its respective affiliates, officers or directors should be
discovered by the Company which should be set forth in an amendment to the
Private
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Placement Memorandum or a supplement to the Private Placement Memorandum, the
Company shall promptly inform SM&A and Newco.
4.29 Disclosure. This Agreement and the Schedules hereto and all other
documents included on, attached to or delivered with the Schedules hereto or
which were otherwise delivered to SM&A pursuant to the provisions of this
Agreement do not and will not include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading. If the Company or any Principal Shareholder becomes aware prior to
the Closing of any fact or circumstance which would change a representation or
warranty of the Company or the Principal Shareholders contained in this
Agreement, such person shall immediately give written notice of such fact or
circumstance to SM&A. However, such notification shall not relieve any person of
its or his respective obligations under this Agreement (including, without
limitation, under Article 4 or 5, as the case may be), and at the sole option of
SM&A, the truth and accuracy of any and all warranties and representations of
the Company and each Principal Shareholder at the date of this Agreement and at
the Closing, shall be a precondition to the consummation of this transaction.
5. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS.
Each Principal Shareholder, severally, but not jointly, represents and
warrants to SM&A and Newco that all of the following representations and
warranties are true as of the date of this Agreement and shall be true on the
Closing Date:
5.1 Authorization; No Conflicts. Such Principal Shareholder has the full
legal right, power and authority to enter into this Agreement, the Registration
Rights Agreement, the Escrow Agreement and the Employment Agreement and to
perform the transactions contemplated herein and therein. The execution,
delivery and performance of this Agreement, the Registration Rights Agreement,
the Escrow Agreement and the Employment Agreement, and the consummation of the
transactions contemplated hereby and thereby, do not and will not (a) violate or
conflict with any Legal Requirement applicable to such Principal Shareholder, or
(b) require any authorization, consent, order, permit or approval of, or notice
to, or filing, registration or qualification with, any Government Authority,
except as set forth on Schedule 4.10. This Agreement has been duly executed and
delivered by such Principal Shareholder, and at the Closing the Registration
Rights Agreement, the Escrow Agreement and the Employment Agreement will be duly
executed and delivered by such Principal Shareholder, and, assuming the due
execution and delivery hereof and thereof by SM&A, Newco and/or the Surviving
Corporation, as the case may be, this Agreement constitutes, and the
Registration Rights Agreement, the Escrow Agreement and the Employment Agreement
will constitute, the legal, valid and binding obligation of such Principal
Shareholder, enforceable against such Principal Shareholder in accordance with
their terms, except as enforceability hereof and thereof may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally and by the exercise of judicial discretion in
accordance with equitable principles.
5.2 Title to Company Stock. Such Principal Shareholder has good and
marketable title to the number of shares of Company Stock set forth opposite
such Principal Shareholder's name on Schedule 4.3, free and clear of
Encumbrances.
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6. REPRESENTATIONS AND WARRANTIES OF SM&A.
SM&A and Newco, jointly and severally, represent and warrant to the
Company and the Principal Shareholders that all of the following representations
and warranties are true as of the date of this Agreement and shall be true on
the Closing Date:
6.1 Organization and Standing. SM&A and Newco are each corporations duly
organized, validly existing and in good standing under the laws of the State of
California and SM&A and Newco are each duly authorized, qualified and licensed
under all applicable laws, regulations, and ordinances of and orders of
Government Authorities to own its properties and assets and to carry on its
business in the places and in the manner as it is now conducted except for where
the failure to be so authorized, qualified or licensed would not have a Material
Adverse Effect on its business. True and correct copies of the Articles of
Incorporation (certified by the Secretary of State of California) and Bylaws
(certified by the Secretary of SM&A), as each is amended, of each of SM&A and
Newco are attached to Schedule 6.1.
6.2 Authorization and Binding Obligation. Each of SM&A and Newco has
full corporate power and authority to enter into and perform this Agreement and
the Agreement of Merger, the Articles of Merger, and the Escrow Agreement, and
the transactions contemplated herein and therein. The execution, delivery and
performance of this Agreement and the Agreement of Merger, the Articles of
Merger, and the Escrow Agreement by SM&A and Newco have been duly and validly
authorized by all necessary action on their respective parts. This Agreement,
the Agreement of Merger, the Articles of Merger, and the Escrow Agreement have
been duly executed and delivered by each of SM&A and Newco and constitutes the
legal, valid and binding obligations of SM&A and Newco, enforceable against SM&A
and Newco in accordance with their terms, except as enforceability thereof may
be limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights generally and by the exercise of judicial discretion
in accordance with equitable principles.
6.3 No Conflicts. The execution, delivery and performance of this
Agreement, the Agreement of Merger, the Articles of Merger, the Escrow
Agreement, and the agreements to be executed and delivered at the Closing, and
the consummation of the transactions contemplated hereby and thereby do not and
will not (a) violate or conflict with any provision of each of SM&A's and
Newco's Articles of Incorporation or Bylaws, (b) violate or conflict with any
provision of, or be an event that is (or with the passage of time will result
in) a default or violation of, or result in the modification, cancellation or
acceleration of (whether after the giving of notice or lapse of time or both)
any obligation under, or result in the imposition or creation of any
Encumbrances upon any of the assets of each of SM&A and Newco pursuant to, any
material contract, mortgage, lien, lease, agreement or instrument to which SM&A
or Newco is a party or by which each of SM&A and Newco is bound, (c) violate or
conflict with any Legal Requirement applicable to each of SM&A and Newco or any
of its properties or assets or any other material restriction of any kind or
character to which it is subject, or (d) require any authorization, consent,
order, permit or approval of, or notice to, or filing, registration or
qualification with, any Government Authority.
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6.4 Approvals. Except as set forth on Schedule 6.4, the execution,
delivery and performance of this Agreement by SM&A and Newco and the issuance
and delivery of the shares of SM&A Stock to be received by the shareholders in
the Merger do not require (a) the consent, approval or authorization of any
governmental or regulatory authority having jurisdiction over SM&A or Newco or
of any third party that have not been obtained, including the SEC and The Nasdaq
Stock Market, or (b) the submission or filing of any notice, report or other
filing with any governmental or regulatory authority having jurisdiction over
SM&A or Newco, including the SEC and The Nasdaq Stock Market.
6.5 Litigation and Administrative Proceedings. There is no litigation,
proceeding or investigation pending or, to the best knowledge of SM&A,
threatened against SM&A or Newco in any federal, state or local court, or before
any administrative agency, that seeks to enjoin or prohibit, or otherwise
questions the validity of, any action taken or to be taken pursuant to or in
connection with this Agreement.
6.6 SM&A Stock Issued in Merger. SM&A has taken all necessary action to
permit it to issue the number of shares of SM&A Stock required to be issued by
it pursuant to this Agreement. The shares of SM&A Stock to be issued in the
Merger will, when issued and delivered to the shareholders of the Company as a
result of the Merger and pursuant to the terms of this Agreement, be duly and
validly issued, fully paid, nonassessable and free of preemptive rights or other
restrictions other than those imposed pursuant to securities laws.
6.7 NASDAQ National Market Listing. SM&A's Stock is duly listed on the
NASDAQ National Market and no inquiry or proceeding has been initiated or, to
SM&A's best knowledge, threatened for the purpose of causing such listing to be
terminated or restricted.
6.8 Taxes.
(a) Prior to the Merger, SM&A will be in control of Newco within
the meaning of Section 368(c) of the Code. SM&A shall not cause or
permit Newco to issue additional shares of its stock that would result
in SM&A losing control of Newco within the meaning of Section 368(c) of
the Code. No stock of Newco will be issued in the Merger.
(b) During its corporate existence, Newco has owned no assets,
and prior to the Merger shall not own any assets other than the SM&A
Stock to be distributed in the Merger.
(c) As of the date hereof and as of the Effective Time, SM&A has
no plan or intention to reacquire any of its stock issued in the Merger.
(d) SM&A shall not: liquidate Newco, merge Newco with or into
another corporation, or sell or otherwise dispose of the stock of Newco,
in any transaction other than the Merger, nor cause Newco to sell or
otherwise dispose of any of the assets of the Company acquired in the
Merger, except for dispositions made in the ordinary course of business
transfers described in Section 368(a) of the Code, or other
liquidations, dispositions or transfers which may be made without
disqualifying the Merger as a tax-free
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reorganization under the Code. Following the Merger, SM&A will cause the
Surviving Corporation to continue the historic business of the Company
or to use a significant portion of the Company's business assets in a
business.
(e) Both SM&A and the Surviving Corporation shall at all times
consistently report on any Tax Return (as defined in Section 4.20) or
other filing made with any federal, state or local tax authority that
the Merger qualifies as a "reorganization" within the meaning of Section
368(a) of the Code, unless so reporting would subject either SM&A or the
Surviving Corporation to penalties pursuant to the Code.
(f) There is no intercorporate indebtedness existing between the
Company and SM&A nor between the Company and Newco that was issued,
acquired, or will be settled at a discount. SM&A is not an investment
company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
6.9 SEC Documents. SM&A has furnished, or within ten (10) days of the
date hereof shall furnish, the Company and each Company shareholder with a true
and complete copy of each report, schedule, registration statement and
definitive proxy statement, if any, filed by SM&A with the SEC on or after
January 29, 1998 (the "SEC Documents"), which are all the documents that SM&A
was required to file with the SEC under the Exchange Act since that date. The
SEC Documents as of their respective dates complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC thereunder, applicable to such SEC Documents, and none of the SEC Documents
as of the date thereof contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The financial statements of SM&A
included in the SEC Documents as of their respective dates complied as to form
in all material respects with applicable accounting requirements and the rules
and regulations of the SEC with respect thereto and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved, except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q and
subject to normally recurring audit adjustments.
6.10 Subsidiaries. Except for Space Applications Corporation (and its
subsidiary entities Staminet, Inc. and Savant Corporation), SM&A does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity. SM&A is not,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
6.11 Financial Statements. Copies of the financial statements of SM&A in
compliance with GAAP shall be provided as part of the Private Placement
Memorandum.
6.12 Permits. SM&A owns or possesses all Permits of any public or other
Government Authority which are necessary for the conduct of its business as
currently conducted. Each of the foregoing is in full force and effect, and each
of SM&A and Newco is in compliance with all of its obligations with respect
thereto, and no event has occurred which permits, or upon giving the
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notice or lapse of time or otherwise would permit, revocation or termination of
any of the foregoing.
6.13 Conformity with Law; Pending or Threatened Claims. Each of SM&A and
Newco has complied with, and each of SM&A and Newco is not in material default
under, any law, rule, ordinance, ruling, directive, or regulation or under any
order, award, judgment or decree of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over each of SM&A and Newco or any of its
assets or its business except where the failure to so comply or default
thereunder would not have a Material Adverse Effect on SM&A or Newco; and there
are no claims, actions, suits or proceedings, pending or, to the Knowledge of
SM&A or Newco threatened, against or affecting SM&A or Newco, at law or in
equity, in any court, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over each of SM&A and Newco or its business and no notice of
any such claim, action, suit or proceeding, whether pending or threatened, has
been received. Each of SM&A and Newco has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statues, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including,
without limitation, all such laws, rules, ordinances, decrees and orders
relating to intellectual property protection, antitrust matters, consumer
protection, currency exchange, environmental protection, equal employment
opportunity, health and occupational safety, pension and employee benefit
matters, securities and investor protection matters, labor and employment
matters, and trading-with-the-enemy matters. Neither SM&A nor Newco has received
any notification of any asserted present or past unremedied failure by SM&A or
Newco to comply with any of such laws, rules, ordinances, decrees or orders.
7. COVENANTS.
7.1 Access and Cooperation. Between the date of this Agreement and the
Closing Date, each of the Company and SM&A will afford to the officers and
authorized representatives of the other party access to all of its and its
subsidiaries' sites, properties, books and records and will furnish the other
party with such additional financial and operating data and other information as
to the business and properties of it and its subsidiaries as the other party may
from time to time reasonably request subject to regulatory requirements
concerning public reporting entities under the Securities Exchange Act of 1934,
as amended. Each of the Company and SM&A and its subsidiaries will cooperate
with the other party, its representatives, engineers, auditors and counsel in
the preparation of any documents or other material which may be required in
connection with any documents or materials required by any governmental agency.
Each of the Company and SM&A will cause all information obtained in connection
with the negotiation and performance of this Agreement to be treated as
confidential. The confidentiality agreement(s) heretofore signed by the Company
and SM&A listed on Schedule 7.1 shall remain in full force and effect until the
Closing.
7.2 Conduct of Business Pending Closing. Between the date hereof and the
Effective Time, each of the Company and the Subsidiary shall:
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(a) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c) perform all of its obligations under agreements relating to
or affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use its best efforts to maintain and preserve its business
organization intact, retain its present employees and maintain its
relationships with suppliers, customers and others having business
relations with it; provided, however, subject to the representations and
warranties contained herein and the terms and conditions of the
Employment Agreements to the contrary, that (X) neither the Company nor
the Subsidiary shall have any liability with respect to the
determination of any of their employees to terminate their employment at
any time, either before or after the Effective Time, and neither SM&A
nor Newco shall be entitled to any adjustment in the Merger
Consideration for any such terminations; and (Y) neither the Company nor
the Subsidiary, shall have any liability with respect to the
determination of any of their customers or suppliers to cease doing
business with the Company, or the Subsidiary, as the case may be, either
before or after the Effective Time, and neither SM&A nor Newco shall be
entitled to any adjustment in the Merger Consideration for any such
event;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and similar governmental approvals;
(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments, without the knowledge and
consent of SM&A; and
(h) use commercially reasonable efforts (such efforts not to
require a rescision offer) to correct any prior failure to comply with
applicable federal and state securities laws in connection with the
prior issuance of its securities.
7.3 Prohibited Activities. Between the date hereof and the Effective
Time, each of the Company and the Subsidiary will not, without the prior written
consent of SM&A:
(a) make any change in its Articles of Incorporation or Bylaws;
(b) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind;
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(c) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in excess of
$10,000, other than in the ordinary course of business and consistent
with past practice;
(e) increase any fringe benefit or the compensation payable or to
become payable to any officer, director, shareholder, employee or agent,
or make any bonus or management fee payment to any such person, other
than in the ordinary course of business and consistent with past
practice;
(f) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now
owned or hereafter acquired; provided, however, that in the event that
the Cash Out Amount exceeds $2,200,000 the Company may do any of the
foregoing in connection with entering into a loan or other agreement to
borrow funds necessary for the Cash Out;
(g) sell, assign, lease or otherwise transfer or dispose of any
material property or equipment, other than in the ordinary course of
business and consistent with past practice;
(h) negotiate for the acquisition of any business or the
start-up of any new business;
(i) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(j) waive any of its material rights or claims, other than the
ordinary course of business and consistent with past practice and for
fair value;
(k) breach or permit a breach, amend or terminate any material
agreement or any of its permits, licenses or other rights;
(l) in the case of the Company, permit its deferred Tax (as
defined in Section 4.20) liability to exceed $4,100,000; or
(m) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4 [Reserved].
7.5 Release by Principal Shareholders. EACH PRINCIPAL SHAREHOLDER HEREBY
AGREES AND CONFIRMS THAT EFFECTIVE AS OF THE CLOSING THE PRINCIPAL SHAREHOLDER
HEREBY FULLY RELEASES, ACQUITS AND FOREVER
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DISCHARGES EACH OF THE COMPANY AND THE SUBSIDIARY, TOGETHER WITH ITS SUCCESSORS,
ASSIGNS, AFFILIATES, ANY PARENT AND RELATED PARTIES, FROM ANY AND ALL LIABILITY,
CLAIM, DAMAGE, SUIT, COST, EXPENSE OR OBLIGATION OF ANY NATURE WHATSOEVER
WHETHER KNOWN OR UNKNOWN, ARISING IN RESPECT OF OR IN CONNECTION WITH ANY TIME
OR PERIOD OF TIME ON OR PRIOR TO THE DATE HEREOF, EXCEPT FOR COMPENSATION
PAYABLE TO SUCH PRINCIPAL SHAREHOLDER BY THE COMPANY OR THE SUBSIDIARY BASED
UPON THE COMPANY'S OR THE SUBSIDIARY'S STANDARD PRACTICES WHICH HAS NOT BEEN
PAID, PLUS THE REASONABLE REIMBURSABLE EXPENSES BASED UPON THE PAST PRACTICES OF
THE PRINCIPAL SHAREHOLDER THAT HAVE NOT BEEN PAID, AND EXCEPT FOR ANY CLAIMS
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY.
7.6 No Shop. Between the date of this Agreement and the earlier of (i)
the Closing Date or (ii) September 15, 1998, each of the Company, the Subsidiary
and the Principal Shareholders shall not, directly or indirectly, in any way
solicit, initiate contact with, or enter into or conduct any discussions or
negotiations, or enter into any agreements, whether written or oral, with any
other firm, entity or individual, with respect to the sale of the stock or
assets or the merger or other business combination of each of the Company and
the Subsidiary with any other entity (an "Acquisition Transaction"). Each of the
Company and the Subsidiary and each Principal Shareholder, shall, if it or he is
the recipient of such an offer, immediately notify SM&A of such event and the
details of such offer. Any provision of this Agreement to the contrary
notwithstanding, the parties hereto acknowledge that each of the Company and the
Subsidiary and each Principal Shareholder is bound by its fiduciary obligations
and that they each must act in accordance with those obligations.
7.7 Options. Prior to, or contemporaneous with, the Closing, the Company
Options shall be exercised or cancelled.
7.8 Conduct of Regulation D Offering. SM&A shall conduct the offering of
the SM&A Stock issuable pursuant to the Merger in compliance with Regulation D
and any applicable state securities laws. SM&A shall not offer SM&A Stock to
more than thirty-five (35) persons who are not "accredited investors" (as
defined in Rule 501(a) of Regulation D).
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS.
The obligations of the Company and each of the Principal Shareholders to
close the transactions set forth in this Agreement are subject to the following
conditions. Upon Closing, all conditions not satisfied are deemed to be waived:
8.1 Representations and Warranties; Performance of Obligations. The
representations and warranties of SM&A and Newco contained in Article 6 shall be
accurate as of the Closing Date as though such representations and warranties
had been made as of that time; all of the terms, covenants and conditions of
this Agreement to be complied with and performed by SM&A and
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Newco on or before the Closing Date shall have been duly complied with and
performed; and the Company shall have received a certificate from a duly
authorized officer of SM&A to such effect.
8.2 Counsel Approval. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to the Company.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by SM&A of the Company Stock or the payment by SM&A
of any Merger Consideration; and no governmental agency or body shall have taken
any other action or made any request of the Company as a result of which the
management of the Company deems it inadvisable to proceed with the transactions
hereunder.
8.4 No Material Adverse Change. No material adverse change in the
results of operations, financial condition or business of each of SM&A and Newco
shall have occurred, and each of SM&A and Newco shall not have suffered any
material loss or damage to any of its properties or assets, whether or not
covered by insurance, since the date hereof, which change, loss or damage
materially affects or impairs the ability of each of SM&A and Newco to conduct
its business; and the Company shall have received a certificate from a duly
authorized officer of SM&A to such effect.
8.5 Opinion of Counsel. The Company shall have received an opinion from
Xxxxx & Xxxxxx, counsel to SM&A, dated the Closing Date, in the form attached
hereto as Exhibit 3.2(b)(vi).
8.6 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency or any third party relating to the
consummation of the transactions contemplated herein shall have been obtained or
made, as applicable, and no action or proceeding shall have been instituted or
threatened to restrain or prohibit the Company's performance of its obligations
hereunder, and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which of the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 Additional Liabilities and Obligations. SM&A shall have delivered to
the Company a list, dated the Closing Date, setting forth all material
liabilities and obligations of SM&A and Newco arising since the date of this
Agreement.
8.8 Additional Contracts. SM&A shall have delivered to the Company a
list, dated the Closing Date, showing all material contracts and agreements,
together with copies thereof, entered into by each of SM&A and Newco since the
date of this Agreement.
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8.9 Good Standing Certificates. SM&A shall have delivered to the Company
a certificate, dated as of a date no longer than five (5) business days prior to
the Closing Date, duly issued by the Secretary of State of the State of
California, showing that each of SM&A and Newco is in good standing and
authorized to do business and that all state franchise and/or income tax returns
have been filed and taxes paid for each of SM&A and Newco for all period prior
to the Closing.
8.10 Securities Compliance. The issuance of the SM&A Stock to the
Company's shareholders shall qualify for an exemption from registration pursuant
to Regulation D.
8.11 Tax Opinion. The Company shall have received an opinion from
Deloitte & Touche, LLP, dated the Closing Date, stating that the Merger, if
completed pursuant to the provisions of this Agreement, will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SM&A AND NEWCO.
The obligation of SM&A and Newco to close the transactions set forth in
this Agreement are subject to the satisfaction, on or prior to the Closing Date,
of the following conditions. Upon Closing, all conditions not satisfied are
deemed to be waived.
9.1 Representations and Warranties; Performance of Obligations. The
representations and warranties of the Company and the Principal Shareholders
contained in Article 4 and Article 5, respectively, shall be accurate as of the
Closing Date as though such representations and warranties had been made as of
that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by the Company and the Principal Shareholders on or
before the Closing Date shall have been duly complied with and performed; and a
certificate to the foregoing effect dated as of the Closing Date and signed by
each Principal Shareholder with respect to such Principal Shareholder's
representations, warranties and obligations and a certificate to the foregoing
effect dated as of the Closing Date and signed by a duly authorized officer of
the Company with respect to the Company's representations, warranties and
obligations, shall have been delivered to SM&A.
9.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by SM&A of the Company Stock or the payment by SM&A
of any Merger Consideration; and no governmental agency or body shall have taken
any other action or made any request of SM&A as a result of which the management
of SM&A deems it inadvisable to proceed with the transactions hereunder.
9.3 Examination of Financial Statements. Prior to the Closing Date, SM&A
shall have had sufficient time to review the unaudited consolidated balance
sheets of the Company as of the end of the month immediately preceding the
Closing Date, and the unaudited consolidated statements of income, cash flow and
shareholders' equity of the Company for the period then ended, disclosing no
material adverse change in the financial condition of each of the Company
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and the Subsidiary or the results of its operations from the financial
statements originally furnished by the Company, as of January 31, 1998 and the
twelve (12)-month period so ended; and showing $2.2 million in cash on hand
(less the Cash Out Amount).
9.4 No Material Adverse Change. No material adverse change in the
results of operations, financial condition or business of each of the Company
and the Subsidiary shall have occurred, and each of the Company and the
Subsidiary shall not have suffered any material loss or damage to any of its
properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of the Company or the Subsidiary to conduct its business; and SM&A shall
have received a certificate signed by a duly authorized officer of the Company
dated the Closing Date to such effect.
9.5 Review. SM&A, through its authorized representatives, must have
completed a satisfactory review of the practices and procedures of each of the
Company and the Subsidiary including, but not limited to, compliance with
contracts and federal, state and local laws and regulations governing the
operations of each of the Company and the Subsidiary, disclosing no actual or
probable violations, compliance problems, required capital expenditures, out of
the ordinary course of business, or other substantive concerns.
9.6 Counsel Approval. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental hereto and all
other related legal matters shall have been approved by counsel to SM&A.
9.7 Opinion of Counsel. SM&A shall have received an opinion from Xxxx
Xxxxxxx Xxxxx & Xxxxxxxxxx, counsel to the Company, dated the Closing Date,
substantially in the form attached hereto as Exhibit 3.2(a)(vii).
9.8 Consents and Approvals. All necessary consents of and filings with
any governmental authority or agency or any third party relating to the
consummation of the transactions contemplated herein shall have been obtained or
made, as applicable, and no action or proceeding shall have been instituted or
threatened to restrain or prohibit SM&A's or Newco's performance of its
obligations hereunder, including the acquisition of the Company Stock and
payment of the Merger Consideration, and no governmental agency or body shall
have taken any other action or made any request of SM&A or Newco as a result of
which SM&A or Newco deems it inadvisable to proceed with the transactions
hereunder.
9.9 Additional Liabilities and Obligations. The Company shall have
delivered to SM&A a list, dated the Closing Date, setting forth all material
liabilities and obligations of each of the Company and the Subsidiary arising
since the Balance Sheet Date.
9.10 Additional Contracts. The Company shall have delivered to SM&A a
list, dated the Closing Date, showing all material contracts and agreements,
together with copies thereof, entered into by each of the Company and the
Subsidiary since the date of this Agreement.
9.11 Good Standing Certificates. The Company shall have delivered to
SM&A a certificate, dated as of a date no longer than five (5) business days
prior to the Closing Date, duly
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issued by the State Corporation Commission of the Commonwealth of Virginia,
showing that the Company is in good standing and authorized to do business and
that all state franchise and/or income tax returns have been filed and taxes
paid for each of the Company and the Subsidiary for all periods prior to the
Closing.
9.12 Securities Compliance. The issuance of the SM&A Stock to the
Company's shareholders shall qualify for an exemption from registration pursuant
to Regulation D.
9.13 Termination of the Company Stock Option Plan. The Company's Board
of Directors shall have voted to terminate the Company's Stock Option Plan as of
the Effective Time.
9.14 Options. All outstanding rights, options, warrants and convertible
securities of each of the Company and the Subsidiary shall have been terminated
to the reasonable satisfaction of SM&A. All existing registration rights of
holders of securities in the Company shall have been terminated, and SM&A shall
have received a certificate to such effect, signed on behalf of the Company by a
duly authorized officer of the Company.
9.15 Dissenters' Rights. At the Closing, the Company's shareholders
holding in the aggregate less than five percent (5%) of the Company Stock, shall
have perfected their Dissenters' Rights.
9.16 Compliance With Regulation D and Rule 144. All shareholders of the
Company at the Closing Date shall have executed and delivered to SM&A
appropriate documentation concerning the status and eligibility to receive SM&A
Stock pursuant to Regulation D including an agreement in form and substance
reasonably satisfactory to SM&A providing that such persons will not sell or
otherwise dispose of any securities of SM&A received pursuant to the Merger
without registration under the Securities Act and any applicable state
securities laws, absent an available exemption therefrom.
10. INDEMNIFICATION.
10.1 Survival. The representations, warranties, covenants and agreements
of the parties made in this Agreement shall survive (and not be affected in any
respect by) the Closing and any examination or investigation conducted by or on
behalf of the parties hereto and any information which any party may receive
pursuant to the Schedules hereto or otherwise. Notwithstanding the foregoing,
the right of indemnification or other claim with respect to each representation
and warranty contained in this Agreement shall terminate on the date (the
"Survival Date") occurring on the second anniversary of the Closing Date.
provided, however, the right to indemnification with respect to such
representations and warranties, and the liability of any party with respect
thereto, shall not terminate with respect to any claim, whether or not fixed as
to liability or liquidated as to amount, with respect to which such party has
been given written notice prior to the Survival Date.
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10.2 Indemnification by Shareholders.
(a) The holders of Outstanding Company Shares shall indemnify,
defend, protect and hold harmless SM&A and the Company, each of their
respective successors and assigns and each of their directors, officers,
employees, agents and affiliates (each an "SM&A Indemnified Person"), at
all times from and after the date of this Agreement (subject to any
limitation on the survival of representations and warranties set forth
in Section 10.1), against all losses, claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses
("Losses") (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation ("Legal Expenses")) based
upon, resulting from or arising out of (i) any inaccuracy or breach of
any representation, or warranty of the Company contained in this
Agreement, and (ii) the breach by the Company of, or the failure by the
Company to observe, any of its covenants or other agreements contained
in this Agreement.
(b) Each of the Principal Shareholders shall indemnify, defend,
protect and hold harmless each SM&A Indemnified Person, at all times
from and after the date of this Agreement (subject to any limitation on
the survival of representations and warranties set forth in Section
10.1) against all Losses (including specifically, but without
limitation, Legal Expenses) based upon, resulting from or arising out of
(i) any inaccuracy or breach of any representation, or warranty of such
Principal Shareholder contained in this Agreement, and (ii) the breach
by such Principal Shareholder of, or the failure by the Principal
Shareholder to observe, any of such Principal Shareholder's covenants or
other agreements contained in this Agreement.
(c) The liability of each holder of Outstanding Company Shares,
other than a Principal Shareholder, under this Section 10.2 shall be
limited to his pro rata interest in the Escrow Shares. The liability of
each Principal Shareholder shall be limited to the aggregate Merger
Consideration received by such Principal Shareholder.
10.3 Indemnification by SM&A. SM&A covenants and agrees that it will
indemnify, defend, protect and hold harmless each holder of Outstanding Company
Shares, his successors and heirs (each a "Shareholder Indemnified Person") at
all times from and after the date of this Agreement (subject to any limitation
on the survival of representations and warranties set forth in Section 10.1)
against all Losses (including specifically, but without limitation, Legal
Expenses) based upon, resulting from or arising out of (a) any inaccuracy or
breach of any representation or warranty of SM&A or Newco contained in this
Agreement, and (b) the breach by SM&A or Newco of, or the failure by SM&A or
Newco to observe, any of its covenants or other agreements contained in or made
pursuant to this Agreement.
10.4 Indemnification Procedures.
(a) Promptly after receipt by any person entitled to
indemnification under Section 10.2 or 10.3 (an "indemnified party") of
notice of the commencement of any action, suit or proceeding by a person
not a party to this Agreement in respect of which the indemnified party
will seek indemnification hereunder (a "Third Party Action"), the
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indemnified party shall notify the person that is obligated to provide
such indemnification (the "indemnifying party") thereof in writing, but
any failure to so notify the indemnifying party shall not relieve it
from any liability that it may have to the indemnified party under
Section 10.2 or 10.3, except to the extent that the indemnifying party
is prejudiced by the failure to give such notice. The indemnifying party
shall be entitled to participate in the defense of such Third Party
Action and to assume control of such defense (including settlement of
such Third Party Action) with counsel reasonably satisfactory to such
indemnified party; provided, however, that:
(i) the indemnified party shall be entitled to
participate in the defense of such Third Party Action and to
employ counsel at its own expense (which shall not constitute
Legal Expenses for purposes of this Agreement) to assist in the
handling of such Third Party Action;
(ii) the indemnifying party shall obtain the prior written
approval of the indemnified party before entering into any
settlement of such Third Party Action or ceasing to defend
against such Third Party Action, if pursuant to or as a result of
such settlement or cessation, injunctive or other equitable
relief would be imposed against the indemnified party or the
indemnified party would be adversely affected thereby;
(iii) no indemnifying party shall consent to the entry of
any judgment or enter into any settlement that does not include
as an unconditional term thereof the giving by each claimant or
plaintiff to each indemnified party of a release from all
liability in respect of such Third Party Action; and
(iv) the indemnifying party shall not be entitled to
control the defense of any Third Party Action unless the
indemnifying party confirms in writing its assumption of such
defense and continues to pursue the defense reasonably and in
good faith. After written notice by the indemnifying party to the
indemnified party of its election to assume control of the
defense of any such Third Party Action in accordance with the
foregoing, (i) the indemnifying party shall not be liable to such
indemnified party hereunder for any Legal Expenses subsequently
incurred by such indemnified party attributable to defending
against such Third Party Action, and (ii) as long as the
indemnifying party is reasonably contesting such Third Party
Action in good faith, the indemnified party shall not admit any
liability with respect to, or settle, compromise or discharge the
claim underlying, such Third Party Action without the
indemnifying party's prior written consent. If the indemnifying
party does not assume control of the defense of such Third Party
Action in accordance with this Section 10.4, the indemnified
party shall have the right to defend and/or settle such Third
Party Action in such manner as it may deem appropriate at the
cost and expense of the indemnifying party, and the indemnifying
party will promptly reimburse the indemnified party therefor in
accordance with this Section 10.4. The reimbursement of fees,
costs and expenses required by this Section 10.4 shall be made by
periodic payments during the course of the investigation or
defense, as and when bills are received or expenses incurred.
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(b) If an indemnified party has actual knowledge of any facts or
circumstances other than the commencement of a Third Party Action which
cause in good faith it to believe that it is entitled to indemnification
under this Article 10 then such indemnified party shall promptly give
the indemnifying party notice thereof in writing, but any failure to so
notify the indemnifying party shall not relieve it from any liability
that it may have to the indemnified party under Section 10.2 or 10.3, as
the case may be, except to the extent that the indemnifying party is
prejudiced by the failure to give such notice.
11. NONCOMPETITION.
11.1 Prohibited Activities of the Principal Shareholders. Each Principal
Shareholder hereby covenants and agrees as follows:
(a) For a period of three (3) years after the Closing Date
(except as set forth in the following paragraph), each Principal
Shareholder shall not for any reason whatsoever, directly or indirectly,
for himself or on behalf of or in conjunction with any other Person,
engage, as an officer, director, shareholder, owner, partner, joint
venturer, lender or in any capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
business selling any products or services in direct or indirect
competition with the Company, the Subsidiary or SM&A on the Closing
Date;
Notwithstanding the foregoing provisions of this paragraph (a)
each Principal Shareholder may (i) be a passive investor owning no more
than five percent (5%) of the outstanding equity securities of any
corporation the equity securities of which are listed on a national
securities exchange or traded on the NASDAQ National Market System and
with which such Principal Shareholder has no other connection whatsoever
or (ii) invest in or act as an employee, consultant or other position
for SM&A, or any of its Affiliates; or
(b) For a period of three (3) years after the Closing Date, each
Principal Shareholder shall not, directly or indirectly, offer to employ
any person who is, at that time, or who has been within one (1) year
prior to that time, an employee of SM&A, the Company or the Subsidiary.
For the purposes of this Section 11.1 general advertising concerning
available employment opportunities through newspapers or trade journals
shall not constitute solicitation.
11.2 Prohibited Activities of SM&A and Newco. In the event the Closing
does not occur for any reason, for a period of one (1) year after the date of
this Agreement, each of SM&A and Newco shall not for any reason whatsoever,
solicit the employment of any person who is, at that time, or who has been
within one (1) year prior to that date, an employee of the Company or the
Subsidiary. For the purposes of this Section 11.2 general advertising concerning
available employment opportunities through newspapers or trade journals shall
not constitute solicitation.
11.3 Acknowledgments.
(a) The parties hereto agree and acknowledge that the damages
that would be suffered by a nonbreaching party as a result of any breach
of the provisions of this
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Article 11 may not be calculable and that an award of a monetary
judgment for such a breach would be an inadequate remedy. Consequently,
a nonbreaching party shall have the right, in addition to any other
rights it may have, to obtain, in any court of competent jurisdiction,
injunctive relief to restrain any breach or threatened breach of any
provision of this Article 11 or otherwise to specifically enforce any of
the provisions hereof, and a nonbreaching party shall not be obligated
to post a bond or other security in seeking such relief. This remedy is
in addition to damages directly or indirectly suffered by a nonbreaching
party and reasonable attorneys' fees; and
(b) The parties hereto agree that the restraint, duration and
area for which the covenants in this Article 11 are to be effective are
reasonable in light of the business and activities of the parties
hereto. In the event that any court finally determines that the time
period or the geographic scope of any such covenant is unreasonable or
excessive and any covenant is to that extent made unenforceable, the
parties agree that the restrictions in this Article 11 shall remain in
full force and effect for the greatest time period and within the
greatest geographic area that would not render it unenforceable. The
parties intend that each of the covenants in Article 11 shall be deemed
to be a separate covenant.
11.4 Independent Covenant. All of the covenants in this Article 11 shall
be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of a nonbreaching
party against a breaching party, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by any party of
such covenants.
12. FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS ON SM&A STOCK;
REGISTRATION RIGHTS.
12.1 Regulation D. The SM&A Stock issuable in connection with the Merger
has not, and as of the Closing will not, be registered under the Securities Act.
Such SM&A Stock will be issued pursuant to an exemption from registration under
Rule 506 of Regulation D promulgated under the Securities Act. Consequently, the
SM&A Stock issued in connection with the Merger may not be sold or otherwise
transferred unless a registration statement under the Securities Act is in
effect with respect to such securities, or in the alternative, an exemption from
registration under the Securities Act is found to be available to the reasonable
satisfaction of SM&A.
12.2 Registration Rights Agreement; Registration Efforts. On the Closing
Date, SM&A and the recipients of SM&A Stock in connection with the Merger shall
each execute a Registration Rights Agreement (the "Registration Rights
Agreement") in substantially the form of Exhibit 12.2 attached hereto which
shall provide that the SM&A Stock issuable pursuant to the Merger shall be
registered, pursuant to a registration statement to be filed with the SEC.
12.3 Form 8-K. The Principal Shareholders shall cooperate with and
assist the Company and SM&A, to the extent reasonably requested by the Company
or SM&A, in providing information for the preparation of the Report on Form 8-K
to be filed by SM&A in connection with the Merger.
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12.4 Legend. All SM&A Stock issued in connection with the Merger shall
bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT, OR UNLESS THE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION, THAT
SUCH REGISTRATION IS NOT REQUIRED."
13. CERTAIN DEFINITIONS.
13.1 "Affiliate" (whether or not capitalized) shall mean, with respect
to any person, any other person that directly, or through one or more
intermediaries, controls or is controlled by or is under common control with
such first person. As used in this definition, "control" shall mean possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or other ownership
interest, by contract or otherwise).
13.2 "Average Closing Price for the Base Period" means the average of
the closing prices of SM&A Stock on the NASDAQ National Market for the twenty
(20) trading days immediately preceding the date of this Agreement.
13.3 "Cash Consideration" means the amount equal to $12,300,000 less the
Purchase Price Adjustment Amount, if any, and further (i) decreased by fifty
percent (50%) of the amount by which the Cash Out Amount exceeds $6,000,000 or
(ii) increased by fifty percent (50%) of the amount by which the Cash Out Amount
is less than $6,000,000, as the case may be.
13.4 "Cash Exchange Amount" shall mean the Cash Consideration divided by
the Outstanding Company Shares.
13.5 "Cash Out" means the payment of cash by the Company to reduce the
aggregate number of its shareholders and optionholders, who are not "accredited
investors" as defined in Rule 501(a) of Regulation D, to thirty-five (35) or
less.
13.6 "Cash Out Amount" means the amount expended by the Company in the
Cash Out.
13.7 "Company Options" mean all options and warrants, whether vested or
not, to purchase shares of Company Stock.
13.8 "Company Stock" means the common stock, $.01 par value per share,
of the Company.
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13.9 "Dissenters' Rights" shall mean the rights of shareholders of the
Company to dissent from corporate action and receive payment of the fair value
of their shares of Company Stock under the Dissenters Law.
13.10 "Encumbrances" shall mean mortgages, liens, pledges, encumbrances
(legal or equitable), claims, charges, security interests, covenants,
conditions, voting and other restrictions, rights-of-way, easements, options,
encroachments, rights of others and any other matters affecting title, except,
in the case of the Company Stock and the SM&A Stock, for restrictions on the
sale or other disposition thereof imposed by federal or state securities laws.
13.11 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
13.12 "GAAP" shall mean generally accepted accounting principles.
13.13 "Government Authority" shall mean any government or state (or any
subdivision thereof), whether domestic, foreign or multinational, or any agency,
authority, bureau, commission, department or similar body or instrumentality
thereof, or any government court or tribunal.
13.14 "Knowledge" with respect to the Company or the Subsidiary shall
mean all facts and conditions which are actually known by any of the executive
officers or directors of the Company or the Subsidiary, as the case may be, or
which should have been known by prudent managers holding such positions with
access to the books and records of the Company or the Subsidiary, as the case
may be; and "Knowledge" with respect to SM&A or Newco shall mean all facts and
conditions which are actually known by any of the executive officers or
directors of SM&A or Newco, as the case may be, or which should have been known
by prudent managers holding such positions with access to the books and records
of SM&A or Newco, as the case may be.
13.15 "Legal Requirement" shall mean any law, statute, ordinance, code,
rule, regulation, standard, judgment, decree, writ, ruling, arbitration award,
injunction, order or other requirement of any Government Authority.
13.16 "Material Adverse Effect" shall mean any material adverse change
in or effect on, or any change that may reasonably be expected to have a
material adverse effect on, (i) the business, operations, assets, liabilities,
condition (financial or otherwise), results of operations, or prospects of each
of the Company and the Subsidiary or each of SM&A and Newco, as the context
requires, (ii) the ability of any of the parties hereto to consummate the
transactions contemplated by this Agreement or any related agreement to which
any such party is a party.
13.17 "Outstanding Common Shares" shall mean the number of shares of
Company Stock outstanding immediately prior to the Effective Time, and any of
such shares. For the avoidance of doubt, Outstanding Company Shares do not
include shares held by the Company, whether as treasury stock or otherwise, or
held by a subsidiary of the Company.
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13.18 "Person" (whether or not capitalized) shall mean and include an
individual, corporation, company, limited liability company, limited liability
partnership, partnership, joint venture, association, trust, and other
unincorporated organization or entity and a governmental entity or any
department or agency thereof.
13.19 "Private Placement Memorandum" means the Private Placement
Memorandum and related disclosure documents furnished to the Company's
shareholders relating to the Merger pursuant to the requirements of Regulation D
under the Securities Act.
13.20 "Purchase Price Adjustment Amount" shall mean any professional
fees (including, without limitation, any legal, accounting and investment
banker/advisor fees) of the Company paid or payable on or before the Closing
Date in respect of the Merger in excess of an aggregate of $485,000 (including
an amount, not to exceed $35,000, payable by the Company to Deloitte & Touche,
LLP for its fees for preparing and delivering a tax opinion that the
transactions contemplated hereby shall be treated as a tax-free reorganization
under Section 368(a) of the Code).
13.21 "Regulation D" shall mean Regulation D of the Securities Act.
13.22 "SEC" shall mean the Securities and Exchange Commission.
13.23 "Securities Act" shall mean the Securities Act of 1933, as
amended.
13.24 "Share Consideration" means the number of shares of SM&A Stock
obtained by dividing $12,600,000 by the Average Closing Price for the Base
Period, and either (i) increased by the number of shares of SM&A Stock obtained
by dividing (A) the amount of which is fifty percent (50%) of the amount by
which the Cash Out Amount is less than $6,000,000, by (B) the Average Closing
Price for the Base Period, or (ii) decreased by the number of shares of SM&A
Stock obtained by dividing (A) the amount which is fifty percent (50%) of the
amount by which the Cash Out Amount exceeds $6,000,000, by (B) the Average
Closing Price for the Base Period, as the case may be.
13.25 "Share Exchange Ratio" is equal to (i) the Share Consideration
divided by (ii) the Outstanding Company Shares.
13.26 "SM&A Stock" means the common stock, no par value of SM&A.
13.27 "Technology" shall mean all trade secrets, proprietary
information, software and computer programs and source code data relating
thereto (including all current and historical data bases) research records, test
information, market surveys, marketing know-how, inventories, know-how,
processes and procedures owned, used by or licensed to each of the Company and
the Subsidiary.
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14. TERMINATION.
14.1 Circumstances of Termination. This Agreement may be terminated
(notwithstanding approval by the shareholders of any party hereto):
(a) By the mutual consent in writing of the Boards of Directors
of the Company and SM&A;
(b) By the Board of Directors of the Company if any condition
provided in Article 8 hereof has not been satisfied or waived on or
before the Closing Date;
(c) By the Board of Directors of SM&A if any condition provided
in Article 9 hereof has not been satisfied or waived on or before the
Closing Date;
(d) By the Board of Directors of either the Company or SM&A if
the Effective Time has not occurred by September 15, 1998;
(e) By SM&A if the Company or any Principal Shareholder has
breached in any material respect any of the representations or
warranties contained in Article 4 or Article 5, respectively;
(f) By the Company if SM&A or Newco has breached in any material
respect any of the representations or warranties contained in Article 6;
(g) By SM&A if (i) the Company's Board of Directors (A) fails to
include a recommendation that the Company's shareholders vote in favor
of the adoption of this Agreement, (B) withdraws its recommendation that
shareholders vote in favor of the Merger, or (C) promulgates a favorable
recommendation regarding an Acquisition Transaction, or (ii) less than
two-thirds (2/3) of the Company's shareholders vote in favor of this
Agreement on or before September 15, 1998; and
14.2 Termination Fee.
(a) In order to induce SM&A to enter into this Agreement and to
reimburse SM&A for its costs and expenses related to entering into this
Agreement and consummating the transactions contemplated by this
Agreement, the Company will make a cash payment to SM&A in the amount of
SM&A's reasonable out-of-pocket expenses in connection with this
Agreement and the transactions contemplated hereby up to a maximum of
$350,000 if:
(i) SM&A has terminated this Agreement pursuant to
Section 14.1(e) because of a breach of any of the Company's or
Principal Shareholders' representations and warranties contained
in Article 4 or Article 5, respectively; or
(ii) SM&A has terminated this Agreement pursuant to
Section 14.1(g)(i).
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(b) The Company will make a cash payment to SM&A of $1,000,000
if within twelve (12) months following the termination of this
Agreement, (i) any of the Company, the Subsidiary and the Principal
Shareholders shall, directly or indirectly, in any way solicit, initiate
contact with, or enter into or conduct any discussions or negotiations,
or enter into any agreements, whether written or oral, with any other
firm, entity or individual, with respect to the sale of the stock or
assets or the merger or other business combination of each of the
Company and the Subsidiary with any other entity, and (ii) the Company
is acquired in an Acquisition Transaction for consideration greater than
$24,900,000, it being agreed that the foregoing represents a reasonable
estimate of SM&A's damages, costs and expenses and is not intended as a
penalty.
(c) Any payment required under this Section 14.2 will be payable
by the Company to SM&A (by wire transfer of immediately available funds)
to an account designated by SM&A within thirty (30) business days after
demand by SM&A.
14.3 Effect of Termination. Except as provided in Section 14.2, in the
event of a termination of this Agreement pursuant to Section 14.1 hereof, each
party shall pay the costs and expenses incurred by it in connection with this
Agreement, and no party (or any of its officers, directors, and shareholders)
shall be liable to any other party for any costs, expenses, damages, or loss of
anticipated profits hereunder.
15. GENERAL.
15.1 Cooperation. The Company, the Principal Shareholders and SM&A shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. Each Principal Shareholder will cooperate and use his best
efforts to have the present officers, directors and employees of the Company
cooperate with SM&A on and after the Closing Date in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing Date.
15.2 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned except by operation of law or the prior
written consent of the other parties, and shall be binding upon and shall inure
to the benefit of the parties hereto, the successors of the Company and SM&A,
and the heirs and legal representatives of the Principal Shareholders.
15.3 Entire Agreement. This Agreement (including the Exhibits attached
hereto and the Schedules delivered pursuant hereto) and the other writings
specifically identified herein or contemplated hereby contain the entire
agreement and understanding between the parties hereto with respect to the
transactions contemplated herein and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. This Agreement
may be modified or amended only by a written instrument executed by the Company,
the Principal Shareholders, Newco and SM&A.
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15.4 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
15.5 Brokers and Agents. Each party represents and warrants that it
employed no broker or agent in connection with this transaction, and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party, except as follows. SM&A and Newco
acknowledge and agree that the Company has engaged the services of Xxxxxx, Xxxxx
Xxxxx, Incorporated ("FBW") and that, in the event that the Merger and related
transactions are consummated, FBW will receive a commission of one percent (1%)
of the value of any Merger Consideration received by the shareholders of the
Company. The FBW commission shall be included within the $485,000 amount set
forth in Sections 13.20 and 15.6.
15.6 Payment of Expenses. Each of the parties hereto shall pay all its
own costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, that SM&A shall pay up to
$485,000 to the Company at the Closing for costs and expenses of professionals
retained by the Company in connection with the Merger and related transactions
(including, without limitation, any legal, accounting and investment advisory
fees and including an amount, not to exceed $35,000, payable by the Company to
Deloitte & Touche, LLP for its fees for preparing and delivering a tax opinion
that the transactions contemplated hereby shall be treated as a tax-free
reorganization under Section 368(a) of the Code).
15.7 Attorney's Fees, Prevailing Party. Should any proceeding be
commenced between the parties to this Agreement seeking to enforce any of its
provisions the prevailing party in such proceeding shall be entitled, in
addition to such other relief as may be granted, to a reasonable sum for
attorneys' fees and all legal expenses and fees incurred on appeal and all
interest thereon. For the purposes of this provision, "prevailing party" shall
include a party which dismisses an action for recovery hereunder in exchange for
payment of the sum allegedly due, performance of covenants allegedly breached,
or consideration substantially equal to the relief sought in the action or
proceeding.
15.8 Notices. All notices or communications required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to SM&A or Newco, addressed to them at:
Xxxxxx Xxxxx & Associates, Inc.
0000 XxxXxxxxx Xxxxx, Xxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Chief Operations Officer
Telephone: (000) 000-0000
Fax: (000) 000-0000
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with a copy (which shall not constitute notice) to:
Xxxxx & Xxxxxx
000 Xxxxx Xxxx., Xxxxx 0000
Xxxxx Xxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
(b) If to the Principal Shareholders, addressed to:
Decision-Science Applications, Inc.
0000 X. Xxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xx. Xxx X. Xxxxxxxx
(c) If to the Company, addressed to it at:
Decision-Science Applications, Inc.
0000 X. Xxxxx Xxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xx. Xxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(d) with a copy (which shall not constitute notice) to:
Xxxx Xxxxxxx Xxxxx & Xxxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
15.9 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California.
15.10 Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
15.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such a manner as
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to be valid, legal and enforceable but so as to most nearly retain the intent of
the parties, and if such modification is not possible, such provision shall be
severed from this Agreement, and in either case the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
15.12 General Terms. As used in this Agreement, the terms "herein,"
"herewith," and "hereof" are references to this Agreement, taken as a whole; the
term "includes" or "including" shall mean "including, without limitations," and
references to a "Section," "subsection," "clause," "Article," "Exhibit,"
"Appendix," or "Schedule" shall mean a Section, subsection, clause, Article,
Exhibit, Appendix or Schedule of this Agreement, as the case may be, unless in
any such case the context requires otherwise. All references to a given
agreement, instrument or other document shall be a reference to that agreement,
instrument or other document as modified, amended, supplemented and restated
through the date as of which such reference is made, and reference to a law
includes any amendment or modification thereof. The singular shall include the
plural, and the masculine shall include the feminine and neuter, and vice versa.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SM&A" XXXXXX XXXXX & ASSOCIATES, INC.,
a California corporation
By: /s/ XXXXXXX X. XXXXXXXX
--------------------------------
Name: XXXXXXX X. XXXXXXXX
Title: COO/Executive Vice President
"COMPANY": DECISION-SCIENCE-APPLICATIONS, INC.,
a Virginia corporation
By: /s/ XXX X. XXXXXXXX
--------------------------------
Name: XXX X. XXXXXXXX
TITLE: CEO/Chairman of the Board
"NEWCO": DSA ACQUISITION, INC.,
a California corporation
By: /s/ XXXXXXX X. XXXXXXXX
--------------------------------
Name: XXXXXXX X. XXXXXXXX
Title: President
"PRINCIPAL SHAREHOLDERS": /s/ XXX X. XXXXXXXX
-------------------------------------
XXX X. XXXXXXXX
/s/ XXXX X. XXXXX
-------------------------------------
XXXX X. XXXXX
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