Exhibit 2.1
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STOCK PURCHASE AGREEMENT
BY AND AMONG
MTC Technologies, Inc.
And
the Shareholders of
Vitronics Inc.
DATED: October 24, 2003
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
October 24, 2003, by and among MTC Technologies, Inc., an Ohio corporation (the
"Buyer"), and the parties identified on the signature page as the Sellers
(collectively, the "Sellers"). The Sellers and the Buyer are sometimes
collectively referred to herein as the "Parties" and individually referred to
herein as a "Party."
RECITALS
A. The Sellers are the record and beneficial owners of all of the issued
and outstanding capital stock of Vitronics Inc, a New Jersey
corporation (the "Company").
B. The Buyer wishes to acquire the Company (the "Acquisition") by
purchasing all of the issued and outstanding common stock, without par
value, of the Company (the "Shares") from the Sellers, and the Sellers
desire to sell to the Buyer, the Shares pursuant to the terms of this
Agreement.
C. The Parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to
the consummation of the Acquisition.
AGREEMENT
NOW, THEREFORE, in and for the consideration and mutual covenants set
forth herein, the Parties agree as follows:
1. Sale and Purchase of the Shares.
1.1. Sale and Purchase of the Shares.
(a) Subject to the terms and conditions of this Agreement, at the
Closing (as hereinafter defined), the Sellers shall sell, transfer, assign and
deliver to the Buyer the number of Shares listed in Schedule 1.1(a), which
constitutes all of the issued and outstanding shares of the common stock,
without par value, of the Company; and the Buyer shall purchase, and thereafter
hold, such the Shares, free from all options, liens, claims, charges and
encumbrances of whatever nature.
(b) The Buyer shall not be obliged to complete the purchase of
any of the Shares hereunder unless the sale of all of the Shares is completed
simultaneously.
1.2. Purchase Price. As consideration for the sale to the Buyer of all
of the Shares by the Sellers, the Buyer shall pay to the Sellers the following
(collectively, the "Purchase Price"):
(a) At the Closing, the Buyer shall pay Eight Million Seven
Hundred Fifty Thousand Dollars ($8,750,000) of the Purchase Price by wire
transfer of immediately available funds as provided in Schedule 1.2(a); and
(b) The Sellers may be entitled to receive an earn-out payment
calculated in accordance with this Section 1.2(b). The "Baseline Gross Profit
for 2003" shall be $2,622,000. The "Target Gross Profit for 2004" shall be
$2,835,000. After the Company's 2003 and 2004 financial statements have been
audited, actual gross profit for 2003 and 2004 will be compared with the
Baseline Gross Profit for 2003 and the Target Gross Profit for 2004. In the
event that the actual gross profit for 2004 does not exceed the Baseline Gross
Profit for 2003, the Sellers will not be entitled to any earn-out payment under
this Section 1.2(b). In the event that the actual gross profit for 2004 is
greater than the Baseline Gross Profit for 2003, but less than the Target Gross
Profit for 2004, the Sellers will be entitled to receive an earn-out payment in
an amount equal to (i) $750,000 times a fraction whose numerator is the actual
gross profit for 2004 less the Baseline Gross Profit for 2003 and whose
denominator is the Target Gross Profit for 2004 less the Baseline Gross Profit
for 2003. In the event that the actual gross profit for 2004 is equal to the
Target Gross Profit for 2004, the Sellers will be entitled to receive an
earn-out payment in the amount of $750,000. In the event that the actual gross
profit for 2004 is greater than the Target Gross Profit for 2004, the Sellers
will be entitled to receive an earn-out payment in an amount equal to $750,000
plus 15% of the excess of actual gross profit for 2004 over the Target Gross
Profit for 2004. All gross profit calculations under this Section 1.2(b) will be
done in accordance with generally accepted accounting principles consistently
applied and in accordance with the historical accounting principles and
practices of the Company set forth in Schedule 1.2(b), a copy of which is
attached hereto. Actual 2003 and 2004 gross profits, the Baseline Gross Profit
for 2003 and the Target Gross Profit for 2004 calculations will exclude the
Company's manufacturing division and any gross profit earned on the West Point
Contract (as defined below). Unless contested by the Sellers as provided in
Section 1.2(e) below, any earn-out payment under this Section 1.2(b) will be
paid to the Sellers and the Optionholders as set forth on Schedule 1.2(a) within
thirty (30) days after the Company's results for 2004 have been audited, and, in
any event, no later than April 30, 2005. All gross profits will be calculated
before allocations of costs from Buyer, except to the extent that Buyer creates
equivalent offsets in the Company's costs.
(c) The Sellers may be entitled to receive an additional earn-out
payment calculated in accordance with this Section 1.2(c). The Company has a bid
outstanding for the IT services at West Point (the "West Point Contract"). If
the Company is successful in its bid and enters into the West Point Contract,
the Sellers will be entitled to receive a payment in an amount equal to 20% of
any gross profit generated by the Company from the West Point Contract during a
three-year period that is the earlier to occur of (i) the three-year period
commencing on the date that the West Point Contract is placed into effect and
(ii) the three-year period ending on June 30, 0000 (xxx "Xxxx Xxxxx Xxxx-Xxx
Period"). All gross profit calculations under this Section 1.2(c) will be done
in accordance with generally accepted accounting principles consistently applied
and in accordance with the historical accounting principles and practices of the
Company set forth in Schedule 1.2(b). Unless contested by the Sellers as
provided in Section 1.2(e) below, any earn-out payments under this Section
1.2(c) will be paid within thirty (30) days after the Company's results for each
of the years ended 2004, 2005, 2006 and 2007 have been audited.
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(d) For the period commencing on the Closing Date and continuing
through the end of the West Point Earn-Out Period, Buyer shall take no action
that will adversely impact the computation and payment of any earn-out payment
provided herein.
(e) The computation of the earn-out payments provided in Sections
1.2(b) and (c) above shall be made by the Buyer's independent accounting firm
(the "Computation"). The Computation will be prepared in accordance with the
provisions of Sections 1.2(b) and (c) of this Agreement. Upon completion of the
Computation by the Buyer's independent accounting firm, the Computation shall be
delivered to the Sellers. The Sellers shall have thirty (30) days from the date
on which the Computation is delivered to them to review the Computation (the
"Review Period"). If the Sellers disagree in any respect with any item or amount
shown or reflected in the Computation, the Sellers may, on or prior to the last
date of the Review Period, deliver a written notice to the Buyer setting forth,
in reasonable detail, each disputed item or amount and the basis for the
Sellers' disagreement therewith, together with supporting calculations (the
"Dispute Notice"). The Dispute Notice shall set forth the Sellers' position as
to the proper amount for each disputed item. If no Dispute Notice is received by
the Buyer with respect to the Computation on or prior to the last day of the
Review Period, the Computation shall be deemed accepted by the Sellers.
Within fifteen (15) days after the Buyer's receipt of a Dispute
Notice, the Buyer and the Sellers shall endeavor in good faith to resolve the
items in dispute with respect to the Computation. If the Buyer and the Sellers
are unable to resolve the items in dispute within fifteen (15) days after the
Dispute Notice is received by the Buyer, the Buyer and the Sellers shall jointly
contact, and shall retain the services of Xxxxx Xxxxxxx LLP, (the "Accounting
Firm"). The Accounting Firm retained by the Buyer and the Sellers shall conduct
a review of the Computation, any related work papers of the Buyer's independent
accounting firm with respect to the Computation, the Dispute Notice and any
supporting documentation as the Accounting Firm in it sole discretion deems
necessary or appropriate, and the Accounting Firm shall conduct such hearings or
hear such presentations by the Parties as the Accounting Firm in its sole
discretion deems necessary or appropriate. The Accounting Firm shall be bound by
the provisions of Sections 1.2(b) and (c) in its determination of the
Calculation.
The Accounting Firm shall, as promptly as practicable and in no
event later than thirty (30) days following the date of its retention, deliver
to the Sellers and the Buyer a report (the "Adjustment Report") which the
Accounting Firm shall, after considering all matters set forth in the Dispute
Notice and review of the related materials provided by the Buyer, the Buyer's
independent accounting firm and the Sellers, determine what adjustments, if any,
should be made to the Computation, subject to the requirement that the
Computation be determined in accordance with the provisions of Sections 1.2(b)
and (c). The Adjustment Report shall set forth, in reasonable detail, the
Accounting Firm's determination with respect to each of the disputed items or
amounts specified in the Dispute Notice, and the revisions, if any, to be made
to the Computation, together with supporting calculations. The Sellers shall pay
one half, and the Buyer shall pay one half, of the fees and expenses of the
Accounting Firm incurred in connection with the matters referred to in this
Section 1.2(e). The Adjustment Report shall be final and binding upon the Buyer
and the Sellers.
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(f) Within thirty (30) days after the end of each quarter during
the earn-out periods contemplated herein, the Company shall provide the Sellers
an unaudited financial report containing the results of operations for the
Company for the quarter just ended. At the end of each fiscal year, the Company
shall provide to each of the Sellers a copy of the Company's audited financial
statements at the same time that the consolidated financial statements
containing the Company's financial statements are publicly released. The Company
shall provide the Sellers with reasonable access on a confidential basis to the
records of the Company's independent accounting firm as they relate to the
earn-out calculations after the Company's financial statements and the earn-out
calculations have been prepared. All obligations under this Section 1.2(f) shall
cease at the end of the West Point Earn-Out Period.
(g) At the Closing, the amount of cash and cash equivalents on
hand in the Company as of the Closing Date in excess of $200,000 shall be paid
to the Sellers and the Optionholders. In the event a final audit of the
Company's financial statements as of the Closing Date shows that the amounts of
cash and cash equivalents on hand in the Company was greater than or less than
$200,000, the difference shall be paid by the Buyer to the Sellers or the
Sellers to the Buyer, as the case may be, within fifteen (15) days of the
delivery of the final audit; provided, however, that no such payment will be
made by any Party if it is less than $5,000.
2. Closing Matters.
2.1. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Coolidge, Wall,
Womsley & Lombard, located at 00 Xxxx Xxxxx Xxxxxx, Xxxxxx, Xxxx 00000,
effective as of the close of business on October 24, 2003 (the "Effective
Date"), at such other date and time as the Buyer and the Sellers shall agree.
The date of the Closing is hereinafter referred to as the "Closing Date."
2.2. Procedures at Closing. The following shall take place at the
Closing:
(a) The Sellers shall deliver to the Buyer the certificates
representing the Shares with appropriate stock power attached and indorsed in
blank.
(b) The Buyer shall pay the amount of $8,750,000 to the Sellers
and the Optionholders by wire transfer of funds to the bank accounts designated
in writing by the Sellers and the Optionholders to the Buyer prior to Closing.
(c) The Company shall pay to the Sellers and the Optionholders an
amount equal to the total amount of the Company's cash and cash equivalents on
the Closing Date in excess of $200,000.
(d) Each Party shall deliver to the other Party an executed copy
of this Agreement, the Transaction Documents (as defined below) and all
consents, approvals, authorizations and other such documents required hereunder.
"Transaction Documents" shall mean all documents, agreements and consents
required to be delivered by each Party hereunder.
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3. Representations and Warranties of the Sellers. Except as otherwise set
forth in the disclosure schedules attached hereto, the Sellers jointly and
severally represent and warrant to the Buyer as of the Closing Date the items as
set forth in this Section 3. No fact or circumstance disclosed to the Buyer
shall constitute an exception to the representations and warranties set forth in
this Section 3, unless such fact or circumstance is fairly and accurately
disclosed in this Agreement or the disclosure schedules attached hereto.
3.1. Organization. The Company (a) is duly organized, validly existing
and in good standing under the laws of the State of New Jersey, (b) has all
necessary power and authority to own its assets and to conduct its business as
it is currently being conducted; and (c) is duly qualified or licensed to do
business and is in good standing in every jurisdiction (both domestic and
foreign) where such qualification or licensing is required, except where the
failure would not have a material adverse effect on the business, conditions,
prospects, properties and results of operations of the Company Schedule 3.1
contains a true and complete listing of the locations of all sales offices,
manufacturing facilities, and any other offices or facilities owned or occupied
by the Company, and a list of all states where the Company is qualified to do
business.
3.2. Capitalization.
(a) As set forth on Schedule 3.2(a), the authorized capital of
the Company consists of: (i) 2,000,000 shares of voting common stock, without
par value, of which 1,259,238 shares are issued and outstanding, (ii) 1,000,000
shares of non-voting common stock, without par value, of which no shares are
issued and outstanding, and (iii) options (the "Options") to purchase 84,220
shares of voting common stock, without par value. The Company does not have any
other class or series of capital stock authorized, issued or outstanding.
(b) All of the outstanding Shares has been duly authorized and
validly issued, are fully paid and non-assessable, and when sold by the Company
were issued in compliance with all applicable laws and regulations concerning
the issuance of securities. Except as set forth on Schedule 3.2(a), none of the
outstanding Shares were issued in consideration in whole or in part for any
contribution, transfer or assignment of the Company Products (as defined below)
or any proprietary rights incorporated therein or otherwise related thereto.
There are no other shares of the Company's capital stock issued or outstanding,
and there are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of capital stock or other securities of the Company. As used
herein, "Company Products" shall mean (i) all versions and implementations of
any product which (A) has been or is being manufactured, sold, licensed,
distributed or marketed by the Company or (B) currently is under development,
(ii) all patents and patent applications, if any, design rights, trade secrets,
copyrights, trademarks, trade names, domain names, and other proprietary rights
of the Company, and (iii) any services provided by the Company.
(c) Currently, the only persons holding outstanding Options are
listed on Schedule 3.2(c) (the "Optionholders").
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3.3. Power, Authority and Validity.
(a) Neither the Sellers nor the Company is subject to or
obligated under any charter, certificate of incorporation, bylaw or contract
provision or any license, franchise or permit, or subject to any order or
decree, which would be breached or violated by or in conflict with the execution
and carrying out of this Agreement and the transactions contemplated hereunder
and under the Transaction Documents. No consent of any person who is a party to
a contract to which the Company is a party, nor consent of any governmental or
regulatory authority, is required to be obtained on the part of the Company nor
the Sellers to permit the transactions contemplated herein.
(b) The Sellers are, and will at the Closing be, the lawful
owners and registered holders of the number of shares of the Shares listed in
Schedule 1.1(a), which constitute all of the outstanding shares of the Company's
capital stock, free and clear of all liens, encumbrances, restrictions and
claims of every kind. The Sellers have, and will at Closing have, full and legal
right, power, authority and capacity to sell, assign, transfer and convey the
Shares so owned by the Sellers pursuant to this Agreement, and the delivery to
the Buyer of such Shares held by the Sellers pursuant to the provisions of this
Agreement will transfer to the Buyer valid title thereto, free and clear of all
liens, encumbrances, restrictions and claims of every kind.
(c) The Sellers have full and legal right, power, authority and
capacity to execute and deliver this Agreement and the Transaction Documents and
to carry out the sale of the Shares held by the Sellers and carry out the other
transactions contemplated hereby without the need to obtain the consent or
approval of any other party. Following the execution of this Agreement, this
Agreement and each of the Transaction Documents will constitute the legal, valid
and binding obligations of the Sellers, enforceable against the Sellers in
accordance with its terms subject to bankruptcy, insolvency, moratorium,
fraudulent conveyance, fraudulent transfer and similar laws of general
applicability affecting the rights and remedies of creditors and to general
principles of equity.
(d) The Sellers own one hundred percent (100%) of the outstanding
capital stock of the Company and, after the Acquisition, the Buyer will own such
stock free and clear of any liens, claims or encumbrances.
(e) The Sellers are not insolvent, bankrupt, or unable to satisfy
their obligations as they become due. None of the Sellers has been threatened
with or is the subject of any bankruptcy, receivership or similar proceeding
involving or affecting the assets of the Sellers. There are no pending or
threatened claims against any of the Sellers involving a fraudulent conveyance
or fraudulent transfer that could impact the assets of any of the Sellers.
3.4. Financial Statements.
(a) The Company has delivered to the Buyer, as of the Closing
Date, the Company's (i) audited balance sheets as of December 31, 2002, December
31, 2001 and December 31, 2000 and the related income statements and cash flow
statements for the periods ended December 31, 2002, December 31, 2001 and
December 31, 2000, (ii) unaudited balance sheet as of September 30, 2003 and the
related income statement and cash flow statement for the
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period ended September 30, 2003, and (iii) any notes relating thereto
(collectively, the "Financial Statements"). The Financial Statements are
attached hereto as Exhibit 3.4, are complete and correct in all material
respects and have been prepared in accordance with DCAA regulations and
generally accepted accounting principles consistently applied. The Financial
Statements present fairly the financial condition, operating results and cash
flows of the Company as of the dates and during the periods indicated therein.
Except to the extent reflected or reserved against or disclosed in the Financial
Statements, or as listed on Schedule 3.4(a), the Company has no liabilities or
obligations of any kind, known or unknown, whether accrued, absolute, contingent
or otherwise, other than liabilities incurred in the ordinary course of business
consistent with past practices of the Company since September 30, 2003 that will
be reflected on the October 24, 2003 balance sheet to be prepared by the Sellers
and presented to the Buyer after the Closing in accordance with Section 7.10
hereof.
(b) No part of any receivable or other amount shown or reflected
in the Financial Statements as being due to the Company has been written off,
written down, waived or released for an amount less than the book value by the
Company.
(c) Since December 31, 2002, the Company's business has not been
materially affected by the loss of any customer, or of any source of supply or
by the cancellation or loss of any order or contract nor, to the Sellers'
knowledge, are there any circumstances likely to lead thereto.
(d) The Company's books and records for each and every government
contract are maintained in full compliance with the requirements and standards
of the Defense Contract Auditing Agency and all other applicable government or
agency laws, rules, regulations and requirements.
(e) The Company has disclosed to the Buyer (i) all significant
deficiencies known to the Company in the design or operation of internal
controls which could adversely affect the Company's ability to record, process,
summarize and report financial data and has identified for the Buyer any
material weaknesses in internal controls, and, (ii) to the Sellers' knowledge
any fraud, whether or not material, that involves management or other employees
who have a significant role in the Company's disclosure controls and procedures.
(f) The Company has disclosed on Schedule 3.4(f) any significant
changes in internal controls or in other factors that could significantly affect
internal controls during or subsequent to any of the periods covered by the
Financial Statements, including any corrective actions taken with regard to
significant deficiencies and material weaknesses.
3.5. Tax Matters.
(a) The Company has timely filed all Returns (as defined below)
required to be filed by it. All such Returns are true and correct and were
prepared and filed in the manner required by applicable law. All Taxes (as
defined below) due from the Company have been paid. There are no pending audits,
assessments, or claims for additional Taxes that have not been paid. All the
provisions for Taxes, if any, reflected on the Financial Statements are true and
correct and there are no tax liens on any property or assets of the Company
other than
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liens for Taxes not yet due and payable. During the five (5) year period ending
on the date hereof, there have been no audits or to the best of the Sellers'
knowledge, examinations of any Tax Returns by any applicable governmental
agency. To the best of the Sellers' knowledge, for the six (6) year period
immediately preceding the Closing, no state of facts exists which would
constitute grounds for the assessment of any penalty or of any further Tax
liability beyond that shown on the Tax Returns that have been filed or shall be
filed for the period ending with the Closing Date, except as indicated in the
Financial Statements. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Return for any period.
As used herein, "Tax" or "Taxes" shall mean any federal, state, local, foreign
or other taxes, including, without limitation, income (net or gross), gross
receipts, profits, alternative or add-on minimum, franchise, license, capital,
capital stock, intangible, services, premium, mining, transfer, sales, use, ad
valorem, payroll, wage, severance, employment, occupation, property (real or
personal), windfall profits, import, excise, custom, stamp, withholding or
estimated taxes, fees, duties, assessments, withholdings or governmental charges
of any kind whatsoever (including interest, penalties, additions to tax or
amounts with respect to such items). As used herein, "Returns" shall mean all
returns, declarations, reports, estimates, information returns and statements of
any nature regarding Taxes for any tax period ending on or before the Closing
Date and, with respect to any Tax period that includes, but does not end on the
Closing Date, the portion of such period that ends on and includes the Closing
Date, required to be filed by any person and relating to the income, properties
or operations of the Company.
(b) All Taxes that the Company has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) The Company is not a party to any tax-sharing agreement or
similar arrangement with any other party.
(d) The Company is not currently under any contractual, or legal
obligation to pay any Tax obligations of, or with respect to any transaction
relating to, any other person or to indemnify any other person with respect to
any Tax.
(e) S Status and Section 338(h)(10) Election. The Company has had
in effect at all times valid elections under Section 1362 of the Internal
Revenue Code of 1986, as amended ("Code"), or its equivalent, and similar
provisions of the applicable state laws (where required or allowed) to be taxed
as an "S" corporation for all tax years and is eligible to make an election
under Section 338(h)(10) of the Code. The Company uses the accrual method of
accounting for purposes of financial statement preparation and reporting and the
cash basis of accounting for purposes of Tax Return preparation and filing.
3.6. Absence of Certain Changes or Events. Since December 31, 2002,
the Company has not:
(a) Suffered any adverse change in its financial condition or in
the operations of its business or suffered any inadequacy of working capital;
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(b) Suffered any damage, destruction or loss in excess of
$10,000, whether covered by insurance or not, affecting its properties or
business;
(c) Granted or agreed to make any increase in the compensation or
benefits payable or to become payable by the Company to its officers or
employees, except those occurring in the ordinary course of business;
(d) Except as contemplated herein and set forth on Schedule
3.6(d), declared, or paid any dividend or made any other distribution on or in
respect of its shares or redeemed or purchased any of such shares;
(e) Issued any shares or any warrants, rights, options or entered
into any commitment relating to the shares of the Company;
(f) Made any change in the accounting methods or practices it
follows, whether for general financial or tax purposes, or any change in
depreciation or amortization policies or rates adopted therein;
(g) Sold, leased or otherwise disposed of any real property or
machinery, equipment or other operating property other than in the ordinary
course of business;
(h) Sold, assigned, transferred, licensed or otherwise disposed
of any patent, trademark, trade name, brand name, copyright, design right (or
pending application for any patent, trademark, design right or copyright)
invention, work of authorship, process, know-how, formula or trade secret or
interest thereunder or other intangible asset except in the ordinary course of
its business;
(i) Engaged in any material activity or entered into any material
commitment or transaction (including without limitation any borrowing or capital
expenditure) other than in the ordinary course of business;
(j) Incurred any liabilities except in the ordinary course of
business that would be required to be disclosed in financial statements prepared
in accordance with generally accepted accounting principles;
(k) Charged or otherwise encumbered any of its property or
assets;
(l) Made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of $10,000, or in the
aggregate, in excess of $25,000, except in the ordinary course of business;
(m) Except in the ordinary course of business, paid, loaned or
advanced any amount to, or sold, transferred or leased any properties or assets
to, or entered into any agreement or arrangement with any of its affiliates,
officers, directors or shareholders or any affiliate or associate of any of the
foregoing;
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(n) Agreed to take any action described in this Section 3 or
outside of its ordinary course of business or, to the Sellers' knowledge, that
would constitute a breach of any of the representations and warranties contained
herein;
(o) No order has been made nor has any resolution been passed for
the winding up of the Company and, nor is there outstanding any petition for the
administration or the winding up of the Company or any receivership of the whole
or any part of the assets of the Company. There are no circumstances that would
entitle any person to present a petition for the administration or the winding
up of the Company or to appoint a receiver or administrator of the whole or any
part of its assets. The Company is not insolvent, and the Company has not
entered into any scheme of arrangement with respect to insolvency with any of
its creditors, including without limitation, a voluntary or involuntary petition
for bankruptcy protection.
(p) Except as set forth on Schedule 3.6(p), since December 31,
2002, the Company has complied with all of the provisions of Sections 7.5(a)
through (g).
3.7. Title and Related Matters.
(a) Other than in relation to leased assets, each asset included
in the Financial Statements and each material asset acquired by the Company
since the dates of the Financial Statements is legally and beneficially owned by
the Company, free from any charges or encumbrances, and is, where capable of
possession, in the possession or under the control of the Company. Such assets
constitute all of the assets necessary to conduct the business of the Company.
(b) All real or personal property leases to which the Company is
a party are valid, binding, enforceable and effective in accordance with their
respective terms. There is not under any of such leases any existing default of
the Company, and to Sellers' knowledge, default of the other parties to such
leases or any other event of default or event that, with notice or lapse of time
or both, would constitute a default.
(c) Schedule 3.7(c) contains a description of all real property
leased or owned by the Company, describing (i) its interest in said property,
(ii) the remaining term, (iii) monthly and total payment terms, and with respect
to the leasehold property, (iv) a description of each parcel and a summary
description of the buildings, structures and improvements thereon. True and
correct copies of the Company's leases have been provided to the Buyer or its
representatives. The Company has good, indefeasible, record and marketable
leasehold title to each of the leased properties shown on Schedule 3.7(c), free
and clear of all claims, tenants and occupants. The Company is the lawful owner
of all improvements and fixtures located on such leased properties, free and
clear of all claims. Each lease or other agreement relating to such leased
properties is a valid and subsisting agreement, without any default of the
Company thereunder and, to the Sellers' knowledge, without any default
thereunder of the other party thereto, and such leases and agreements give
Company the right to use or occupy, as the case may be, all real properties as
are sufficient and adequate to operate the Company's business.
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3.8. Intellectual Proprietary Rights.
(a) To the Sellers' knowledge, the Company owns, to the extent
applicable, all right, title and interest in and to, or valid licenses for use
of, all copyrights, design rights, technology, software, software tools,
hardware, know-how, processes, trade secrets, trademarks, service marks, trade
names, domain names, and other proprietary and intellectual property rights in
the United States used, to the extent such use requires ownership or licensing,
in the conduct of and material to its business as conducted on the date hereof
and the Closing Date and as proposed to be conducted including, without
limitation, the technology and all proprietary and intellectual property rights
which constitute Company Products, free and clear of all liens, encumbrances
(including without limitation distribution rights) or claims (all of which are
referred to as "Proprietary Rights"). The foregoing representation as it relates
to Third Party Technology (as hereinafter defined) is limited to, and is subject
to the terms of, the Company's interest in Third Party Licenses (as hereinafter
defined), all of which are valid and enforceable in all material aspects and in
full force and effect and which grant the Company such rights to Third Party
Technology as are employed in the business of the Company as conducted to the
date of this Agreement. The Company holds no patents, trademarks or registered
copyrights in any jurisdiction. The Company is the applicant on a provisional
patent application for the processor aided firing of small arms system. Schedule
3.8(a) contains an accurate description of (i) all trade names, domain names,
and copyrights which constitute Company Products, all applications and
registration statements therefor, and a list of all licenses to Company Products
where the Company is the licensor, and (ii) a list of all licenses and other
agreements with third parties where the Company is the licensee (the "Third
Party Licenses") relating to any hardware, software, inventions, technology,
know-how, or processes and all intellectual property rights in respect thereof
(A) that the Company has licensed or is otherwise authorized by such third
parties to use, market, distribute or incorporate into the Company Products
(such software, inventions, technology, know-how and processes and all
intellectual property rights in respect thereof are collectively referred to as
the "Third Party Technology") and (B) that third parties are licensed or
otherwise authorized by the Company to use, market, distribute or incorporate
into products distributed by those third parties. To the Sellers' knowledge, all
of the Company's trade names or domain name registrations that constitute
Company Products, and all of the copyrights that constitute Company Products are
valid and in full force and effect, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights.
(b) Neither the Company nor the Sellers has received notice of
any claim that has been asserted or threatened against the Company or against
any customer of the Company (and the Company and the Sellers are not aware of
any claims which are likely to be asserted against the Company or that have been
asserted or threatened against others related to the Company or the Company
Products) by any person alleging infringement by or challenging the Company's or
the Company's customers' use, possession, manufacture, sale or distribution of
the Company Products under any patents, trademarks, trade names, domain names,
copyrights, design rights, trade secrets, software, technology, know-how or
processes utilized by the Company (including, without limitation, the Third
Party Technology) or challenging or questioning the validity or effectiveness of
any license relating thereto (including, without limitation, the Third Party
Licenses). To the Sellers' knowledge, there is no valid basis for any claim of
the type specified in the immediately preceding sentence that is likely in any
material
11
way to interfere with the continued enhancement and exploitation by the Company
of any of the Company Proprietary Rights or the Company Products.
(c) To the Sellers' knowledge, none of the Company Products or
the use or exploitation of any patents, trademarks, trade names, copyrights,
design rights, software, hardware, technology, know-how or processes by the
Company in its current business, infringes on the rights of, or constitutes
misappropriation of any proprietary information or intangible property right of
any third person or entity, including, without limitation, any patent, trade
secret, copyright, design right, trademark or trade name of any third person. To
the Sellers' knowledge, none of the Company's Proprietary Rights is being or has
been infringed by any third party.
(d) Schedule 3.8(d) sets forth all third parties that have been
granted by the Company the right to either manufacture, reproduce, distribute,
license, market or exploit any of the Company Products or any adaptations,
translations, or derivative works based on the Company Products or any portion
thereof.
(e) To the extent material to the operations of the Company, all
designs, drawings, specifications, methods, source code, object code,
documentation, flow charts and diagrams incorporating, embodying or reflecting
any of the Company Products at any stage of their development (the "Company
Components") were written, designed, developed and created solely and
exclusively by employees of the Company without the assistance of any third
party or entity or were created by third parties who have assigned ownership of
their rights to the Company by means of confidentiality and invention assignment
agreements or otherwise licensed the same to the Company pursuant to the Third
Party Licenses, true and correct copies of which third-party assignments and
Third-Party Licenses have been delivered to the Buyer and each of the third
party assignments and Third Party Licenses are listed on Schedule 3.8(e). The
Company has required all the employees listed on Schedule 3.8(e) to sign a
confidentiality and assignment of invention agreement. The Company has at all
times disclosed or otherwise dealt with trade secrets and other confidential
information relating to the Company Products in a manner that is consistent with
prudent practices in the same industry.
(f) No employee of the Company is in violation of any term of any
confidentiality and invention assignment agreement, whether written or oral, and
has not made any claim of ownership concerning any Company Product or the
Company Components.
(g) No product liability or warranty claims have been
communicated to or asserted against the Company nor, to the Sellers' knowledge,
is there any specific situation, set of facts or occurrence that provides a
basis for such claim.
(h) Except with regard to any contractual restrictions on
assignment contained in the Customer Contracts disclosed in Schedule 3.8(h),
none of the Proprietary Rights are subject to any restrictions of use or
ownership that would require consent of third parties to the Acquisition or
which would give a contractual or legal right to any third party to alter such
right as a result of the Acquisition.
(i) To the knowledge of the Sellers, no one has challenged the
use by the Company of the name "Vitronics."
12
3.9. Bank Accounts. Schedule 3.9 sets forth the names and locations of
all banks, trusts, companies, savings and loan associations, and other financial
institutions at which the Company maintains accounts of any nature and the names
of all persons authorized to draw thereon or make withdrawals therefrom. No
overdraft or other financial facilities available to or drawn by the Company are
or will at the Closing be secured by, or dependent on, any guarantee or security
provided by any Sellers or any other third party.
3.10. Contracts.
(a) Schedule 3.10(a) contains a list of all agreements,
contracts, subcontracts, teaming agreements and commitments that provide for the
sale, licensing or distribution by the Company of any of its products,
inventions, technology, know-how, trademarks or trade names or the provision of
services by the Company, true and correct copies of which have been provided to
the Buyer, together with all correspondence or other written communications
affecting such agreements, contracts, subcontracts, teaming agreements and
commitments.
(b) Except for any payments or expenditures paid or received
pursuant to any of the agreements, contracts, subcontracts, teaming agreements
or commitments listed on Schedule 3.10(a), Schedule 3.10(b) contains a list of
all agreements, contracts or commitments that call for fixed and/or contingent
payments or expenditures by or to the Company of more than $10,000, true and
correct copies of which have been provided to the Buyer.
(c) Except as set forth on Schedule 3.10(c), the Company has no
purchase agreement, contract or commitment that calls for purchases in excess of
the normal, ordinary and usual requirements of the Company's business and which
require fixed and/or contingent payment by the Company in excess of $25,000
within a one-year period.
(d) There is no outstanding service, sales, purchase, lease or
licensing contract, subcontract, commitment or proposal of the Company that is
currently expected to result in any loss to the Company (before allocation of
overhead and administrative costs) upon completion or performance thereof.
(e) Except as set forth on Schedule 3.10(e), the Company has no
outstanding agreements, contracts or commitments with officers, employees,
agents, consultants, advisors, salesmen, sales representatives, distributors,
dealers or other contractors that are not terminable by the Company at its
option on notice of not longer than thirty (30) days and without liability,
penalty or premium.
(f) The Company is not a party to any collective bargaining or
other agreements, contracts, arrangements or commitments with any trade union or
employees' organization.
(g) Except as set forth on Schedule 3.10(g), the Company is not
restricted by agreement or otherwise from competing with any person or from
carrying on its business anywhere in the world.
13
(h) The Company is under no liability or obligation, and no such
outstanding claim has been threatened or made, with respect to the rejection of
or objection to services or deliverables provided by the Company to any customer
or prime contractor, or return to the Company of inventory or merchandise in the
possession of wholesalers, distributors, retailers, or other customers or prime
contractors. Furthermore, no third party, prime contractor or customer of the
Company has sought, or intends to seek, indemnification from the Company for any
reason.
(i) The Company is not liable for and has not guaranteed any
obligations of other persons or made any agreements to acquire or guarantee any
obligations of other persons.
(j) The Company has no outstanding loan or advance to any person;
nor is it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort that would permit the borrowing
by the Company of, or make the Company liable for, any sum not reflected in the
Financial Statements.
(k) All material contracts to which the Company is a party are
valid, binding, in full force and effect and enforceable by the Company in
accordance with their respective terms. Except as set forth on the Schedule
3.10(k), no such material contract contains any liabilities for consequential
damages, including lost profits, liquidated damages, penalty or similar
provision. To the Sellers' knowledge, no party to any such material contract
intends to cancel, withdraw, modify or amend such contract. The Company is not a
party to any third party's purchase order and has not agreed to any terms and
conditions that appear on a third party's purchase order.
(l) Schedule 3.10(l) lists all material agreements pursuant to
which the Company has agreed to manufacture for or supply to any third party any
of the Company Products or components thereto, true and correct copies of which
have been provided to the Buyer. Schedule 3.10(l) lists each person who
manufactures for or supplies to the Company any material product or component
included in the Company Products or is the sole source for any product or
component included in the Company Products.
(m) The Company is not in default under or in breach or violation
of, nor is there any valid basis for any claim of default by the Company under,
or breach or violation by the Company of, any agreement, contract, subcontract,
commitment or restriction to which the Company is a party or to which it was a
party in the past. To the knowledge of the Sellers, no other party is in default
under or in breach or violation of, nor is there any valid basis for any claim
of default by any other party under or any breach or violation by any other
party of, any material contract, subcontract, commitment, or restriction to
which the Company is bound.
(n) No material agreements, contracts, subcontracts and
commitments to which the Company is a party contain provisions that would
require the consent of third parties to the Acquisition or that would give a
contractual or legal right to alter the current terms thereof or interfere in
any way with the Company's rights thereunder as a result of the Acquisition. No
prime contracts to which the Company is not a party, but with respect to which
the Company has been designated or is acting as a subcontractor contain
provisions that would
14
require the consent of third parties to the Acquisition or that would give a
contractual or legal right to alter the current terms of the Company's
subcontract or interfere in any way with the Company's rights under the
subcontract as a result of the Acquisition.
3.11. Orders, Commitments and Returns. All accepted and unfilled
orders entered into by the Company for the sale or license of any the Company
Products, and all agreements, contracts, or commitments for the purchase of
supplies or service by the Company, were made in the ordinary course of
business. No outstanding purchase or outstanding lease commitment of the Company
is in excess of the normal, ordinary and usual requirements of its business.
3.12. Compliance With Other Instruments and Laws. The Company is (a)
not in violation of any provisions of its Certificate of Incorporation or
By-laws as currently in effect and (b) to the Sellers' knowledge, in compliance
with all applicable laws and regulations, including without limitation, those
relating to the importation or exportation of its products. Neither the Company
nor any of its employees has directly or indirectly paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, government official or other party in the United States or
any other country, that was or is in violation of any federal, state, or local
statute or law or of any statute or law of any other country having jurisdiction
over the Company.
3.13. Labor Difficulties; No Discrimination.
(a) The Company is not in violation of any applicable laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, including, without limitation, those relating
to the designation and treatment of exempt and non-exempt employees.
(b) There is no strike, labor dispute, slowdown, or stoppage
actually pending or threatened against the Company.
(c) The Company has not experienced any material labor disputes
or industrial action.
(d) There is and has been within the past two (2) years no claim
against the Company based on actual or alleged race, age, sex, disability,
harassment or discrimination, or similar tortuous conduct, nor, to the Sellers'
knowledge, is there any basis for any such claim within the applicable statutes
of limitations.
(e) There is no unfunded prior service cost with respect to any
bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option, or other employee benefit or fringe benefit plans,
whether formal or informal, maintained by the Company.
(f) To the Sellers' knowledge, no circumstances have arisen under
which the Company is likely to be required to pay damages for wrongful
dismissal, to make any statutory redundancy payment or any payment in respect of
unfair dismissal, to make any other payment or to reinstate or re-engage any
former employees. There are no pending or to the
15
Sellers' knowledge threatened claims of any type against the Company by any
existing or former employees.
(g) Schedule 3.13(g) contains details of:
(i) The total number of the Company's current employees
(including any such on maternity leave or absent because of disability or other
long-term leave of absence and who have or may have a right to return to work
with the Company);
(ii) The name, date of start of employment, period of
continuous employment (if different), status of visas, salary and other benefits
of each such employee; and
(iii) The terms of the contract of each director, officer
and employee of the Company.
(h) Except as set forth on Schedule 3.13(h), the Company does not
have and is not proposing to introduce a share incentive, option, profit
sharing, bonus or other incentive scheme for any unfunded obligations accruing
for the benefit of any of its directors, officers or employees.
3.14. Trade Regulation. All of the prices charged by the Company in
connection with the marketing or sale of any products or services have been in
compliance with all applicable laws and regulations. No claims have been
communicated or, to the Sellers' knowledge, threatened against the Company with
respect to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair competition,
false advertising, or any other violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind, and, to the
Sellers' knowledge, there are no specific facts likely to provide any basis for
any such claim.
3.15. Insider Transactions. No affiliate of the Company has any
interest in (a) any material equipment or other property, real or personal,
tangible or intangible, including, without limitation, any item of intellectual
property, used in connection with or pertaining to the business of the Company,
or (b) any creditor, supplier, customer, manufacturer, agent, representative, or
distributor of products of the Company.
3.16. Independent Contractors and Consultants. Schedule 3.16 lists and
describes all currently effective agreements with independent contractors or
consultants engaged by the Company and which relate to the Company Products.
True and correct copies of all such written agreements have been provided to the
Buyer.
3.17. Insurance.
(a) Schedule 3.17(a) is a correct and complete list of insurance
policies of any kind or nature presently applicable to or covering the
operations and real and tangible property of the Company, including, without
limitation, policies of life, disability, fire, theft, casualty, product
liability, xxxxxxx'x compensation, business interruptions, employee fidelity,
and other casualty and liability insurance indicating the type of coverage, name
of
16
insured, the issuer, the premium, the expiration date of each policy and the
amount of coverage. The operations, assets and real and tangible properties of
the Company are insured with sufficient coverage with responsible insurers
against the usual and normal hazards and liabilities of the character usually
insured against by companies in the same or similar business. All such policies
are in full force and effect, and the Company has not received any notice of
cancellation in respect of insurance coverage.
(b) Schedule 3.17(b) lists all claims, which (including related
claims which in the aggregate) exceed $25,000 and which have been made by the
Company in the last three years under any workers' compensation, general
liability, property, directors' and officers' liability or other insurance
policy applicable to the Company or any of its properties. Except as set forth
on Schedule 3.17(b), there are no pending or threatened claims under any
insurance policy. Such claim information includes the following information with
respect to each accident, loss, or other event: (i) the identity of the
claimant; (ii) the nature of the claim; (iii) the date of the occurrence; (iv)
the status as of the report date; and (v) the amounts paid or expected to be
paid or recovered.
3.18. Litigation. Except as set forth on Schedule 3.18 hereto, (a)
there is no action, suit, dispute, investigation, proceeding or claim pending
or, to the best knowledge of the Sellers, threatened against or affecting the
Company, or its properties or rights, or its business, before any court,
administrative agency, governmental body, arbitrator, mediator or other dispute
resolution body, and the Sellers are not aware of any facts or circumstances
which may give rise to any of the foregoing, (b) all of the proceedings pending
or threatened against the Company are fully covered by insurance policies (or
other indemnification agreements with third parties) and are being defended by
the insurers (or such third parties), (c) the Company is not subject to any
order, judgment, decree, injunction, stipulation, or consent order of or with
any court or other governmental agency, and (d) the Company has not entered into
any agreement to settle or compromise any proceeding pending or threatened
against it which has involved any obligation other than the payment of money or
for which the Company has any continuing obligation. There are no pending suits,
actions or proceedings or, to the Sellers' knowledge, any threatened suits,
actions or proceedings against any customer of the Company regarding the Company
Products.
3.19. Governmental Authorizations and Regulations. The Company has all
necessary licenses, franchises, permits and other governmental authorizations,
all of which are valid and sufficient for the business presently carried on by
the Company.
3.20. Subsidiaries. The Company has no subsidiaries. Except as set
forth on Schedule 3.20, the Company has never owned or controlled (directly or
indirectly) any capital stock, bonds or other securities of, and does not have
any proprietary interest in, any other corporation, general or limited
partnership, firm, association, joint venture, project group, or business
organization, and the Company has never controlled (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization.
3.21. Compliance with Laws. The Company has obtained all permits,
licenses and other authorizations that are required to be obtained by it under
all applicable laws,
17
including, but not limited to, laws relating to pollution, protection of the
environment or human health, laws or provisions relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials, substances, or wastes into air, surface water,
groundwater, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials, substances, or wastes.
The Company is in material compliance with all terms and conditions of such
permits, licenses and authorizations. The Company is not aware of, nor has the
Company received written or oral notice of, any conditions, circumstances,
activities, practices, incidents, or actions that may form the basis of any
claim, action, suit, proceeding, hearing, or investigation of, by, against or
relating to the Company or any person or entity (including, without limitation,
any predecessor or the Company) whose liability the Company may have retained or
assumed either contractually or by operation of law, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic substance, material or waste. To the Sellers' knowledge, there are not,
and have not been in the past, any underground tanks or underground improvements
at, on or under any property leased or owned by the Company, including without
limitation, treatment or storage tanks, sumps, or water, gas or oil xxxxx. No
polychlorinated biphenyls (PCBs), asbestos, or formaldehyde or material
containing urea formaldehyde have been used, deposited, stored or disposed of
released or otherwise located at on or under any property leased or owned by the
Company. True, complete and correct copies of all environmentally related
assessments, audits, investigations, studies, analyses, tests, sampling or
monitoring results or similar reports in the possession of or available to the
Company or the Sellers and relating to any property leased or owned by the
Company have been provided to the Buyer.
3.22. Corporate Documents. The Company has furnished to the Buyer for
its examination: (a) copies of its Certificate of Incorporation and By-laws; (b)
its minute book containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof; (c) all material permits, orders, and
consents issued by any regulatory agency with respect to the Company, or any
securities of the Company, and all applications for such permits, orders, and
consents; and (d) the register of shareholders and other stock ledgers and
registers of the Company setting forth all issuances and transfers of its shares
since incorporation. All such books and registers and other corporate records of
the Company are complete and accurate in all material respects, and the
signatures appearing on all documents contained therein are the true signatures
of the persons purporting to have signed the same. All actions reflected in such
books and records were duly and validly taken in compliance with the laws of all
applicable jurisdictions.
3.23. No Brokers. Except for the Geneva Companies Inc., neither the
Company nor any of the Sellers is obligated for the payment of fees or expenses
of any broker or finder in connection with the origin, negotiation or execution
of this Agreement or in connection with any transaction contemplated hereby.
18
3.24. Employee Benefit Plans.
(a) Schedule 3.24(a) hereto sets forth a complete and accurate
list of each plan, program, arrangement, agreement or commitment that is an
employment, consulting or deferred compensation agreement (whether or not funded
or qualified), or an executive compensation, incentive bonus or other bonus,
employee pension, profit-sharing, savings, retirement, stock option, stock
purchase, severance pay, life, health, disability or accident insurance plan, or
vacation or other employee benefit plan, program, arrangement, agreement or
commitment (individually a "Plan" and collectively, the "Plans"), including,
without limitation, each employee benefit plan (as defined under Section 3(3) of
"ERISA" maintained by the Company or any trade or business (whether or not
incorporated) which, together with such persons, would be ERISA Affiliates or to
which any ERISA Affiliate contributes or has any obligation to contribute to, or
has or may have any liability (including, without limitation, a liability
arising out of an indemnification, guarantee, hold harmless or similar
agreement). Each Plan is identified on Schedule 3.24(a), to the extent
applicable, as one or more of the following: an "employee pension plan" (as
defined in Section 3(2)(A) of ERISA), an "employee welfare plan" (as defined in
Section 3(1) of ERISA), or as a plan intended to be qualified under Section 401
of the Code. "ERISA Affiliates" means, collectively, such persons, as would be
treated as a single employer under Title IV of ERISA or Section 414 of the Code.
(b) The Company has complied, and currently is in compliance, in
all respects with all laws and regulations applicable to the Plans, including,
without limitation, ERISA, the Code and the U.S. Department of Labor.
(c) No ERISA Affiliate has maintained, adopted or established,
contributed to or been required to contribute to, or otherwise participated in
or been required to participate in, any employee benefit plan or other program
or arrangement subject to Title IV of ERISA (including, without limitation, a
"multi-employer plan" (as defined in Section 3(37) of ERISA), a multiple
employer plan (as defined in Section 210 of ERISA) and a defined benefit plan
(as defined in Section 3(35) of ERISA)).
(d) Except as set forth on Schedule 3.24(d), the Company does not
provide or may not be required to provide and no Plan, other than a Plan that is
an employee pension benefit plan (within the meaning of Section 3(2)(A) of
ERISA), provides or may be required to provide benefits, including, without
limitation, death, health or medical benefits (whether or not insured), with
respect to current or former employees of the Company beyond their retirement or
other termination of service with the Company (other than (i) coverage mandated
by applicable law, (ii) deferred compensation benefits accrued as liabilities on
the books of Company, or (iii) benefits the full cost of which is borne by the
current or former employee (or his or her beneficiary)). No ERISA Affiliate
maintains any Plan under which any employee or former employee of any of the
ERISA Affiliates may receive medical benefits which cannot be modified or
terminated by the ERISA Affiliates at any time without the consent of any
person, and no employees or former employees of the ERISA Affiliates will have
any claim in respect of such benefits as of the Closing Date.
(e) The transactions contemplated hereby will not result in (i)
any portion of any amount paid or payable by the Company to a "disqualified
individual" (within the
19
meaning of Section 280G(c) of the Code and the regulations promulgated
thereunder), whether paid or payable in cash, securities of the Company or
otherwise and whether considered alone or in conjunction with any other amount
paid or payable to such a "disqualified individual," being an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code and the
regulations promulgated thereunder, (ii) any employee of the Company being
entitled to severance pay, unemployment compensation, or any other payment from
the Company, (iii) an acceleration of the time of payment or vesting, or an
increase in the amount of compensation due to any such employee or former
employee, or (iv) any prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Code for which an exemption is not available.
(f) No ERISA Affiliate has incurred any liability with respect to
any Plan under ERISA (including, without limitation, Title I or Title IV
thereof, other than liability for premiums due to the Pension Benefit Guaranty
Corporation), the Code or other applicable law, which has not been satisfied in
full or been accrued on the Financial Statements, pending full satisfaction, and
no event has occurred, and there exists no condition or set of circumstances,
which could result in the imposition of any liability under ERISA, the Code or
other applicable laws or regulations with respect to any Plan.
(g) With respect to each Plan that is funded wholly or partially
through an insurance policy, all premiums required to have been paid to date
under the insurance policy have been paid, and, except as set forth on Schedule
3.24(g), as of the Closing Date there will be no liability of any of the ERISA
Affiliates under any such insurance policy or ancillary agreement with respect
to such insurance policy in the nature of a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability arising wholly or
partially out of events occurring prior to the Closing Date.
(h) None of the ERISA Affiliates has made any contribution to any
Plan that may be subject to any excise tax under Section 4972 of the Code.
(i) Any and all Plans which are pension plans within the meaning
of Section 3(2) of ERISA ("Pension Plans") and which are intended to be
qualified plans under Sections 401 and 501 of the Code, have remained qualified
under the Code since inception and have been determined by the Internal Revenue
Service (the "IRS") to be so qualified, and the IRS has taken no action to
revoke such determination or qualification.
(j) Except as set forth in Schedule 3.24(j), all reports and
disclosures relating to the Plans required to be filed with or furnished to
governmental agencies, plan participants or plan beneficiaries have been or will
be filed or furnished in accordance with applicable law in a timely manner.
(k) There are no actions, suits or claims (other than routine
claims for benefits) pending, or, to the best of the Sellers' knowledge,
threatened against any Plan or against the assets funding any Plan.
(l) Other than applications for determination, no action is
pending with respect to the Plans before the IRS, the U.S. Department of Labor
or before any state or local governmental agency.
20
(m) No act or omission constituting a breach of fiduciary duties
has occurred with respect to the Plans or the assets thereof which could subject
the Company, Buyer or their assets, either directly or indirectly, to any
liability.
(n) None of the Plans of the Company constitute a "defined
benefit plan" as defined in Section 3(35) of ERISA.
(o) The Sellers will deliver to the Buyer prior to the Closing
Date true and complete copies of: (i) all documents governing the Plans,
including, without limitation, all amendments thereto which will become
effective at a later date; (ii) the latest IRS determination letter obtained
with respect to each of the Pension Plans; (iii) Form 5500 for the most recent
completed plan year for each of the Plans, together with all schedules forming a
part thereof; (iv) annuity contracts funding obligations of any Plan; (v) all
employment manuals; and (vi) insurance policies or contracts with respect to the
Plans.
3.25. Accounts Receivable and Advances. Schedule 3.25 contains a true
and accurate schedule of all accounts receivable (the "Accounts Receivable") and
all loans and advances received by or made to third parties by (individually an
"Advance" and collectively, the "Advances") the Company. Except as disclosed on
Schedule 3.25, (a) each Account Receivable of the Company represents a sale made
in the ordinary course of business other than to affiliates and which arose
pursuant to an enforceable written contract for a bona fide sale of goods or for
services performed, and the Company has performed all of its obligations to
perform the services to which such Account Receivable relates, (b) no Accounts
Receivable or Advance, in each case in excess of $1,000, is subject to any claim
for reduction, counterclaim, set-off, recoupment or other claim for credit,
allowances or adjustments by the obligor thereof, and (c) except as reserved
against in the Financial Statements, all Accounts Receivable and Advances are
collectible in full within one hundred eighty (180) days of their origination.
To the extent that the Buyer makes a claim for indemnification against the
Sellers for any Accounts Receivable that are not collected within such time
period and such Accounts Receivable are collected at a later date by the
Company, the Buyer will reimburse the Sellers for the amount that the Sellers
paid to the Buyer in connection with such claim.
3.26. Accuracy of Statements. None of the information supplied by the
Company or the Sellers to the Buyer in this Agreement or any schedule or exhibit
hereto, or in any statement, list, or document furnished or to be furnished to
the Buyer does contain or will contain any untrue statement of a fact or does
omit or will omit to state a fact necessary to make the statements contained
herein, in light of the circumstances in which they are made, not materially
misleading. Copies of any documents furnished or to be furnished by the Company
or the Sellers or any of its representatives to the Buyer or any of its
representatives hereunder are and will be true, correct and complete copies. To
the knowledge of the Sellers, there is no fact which adversely affects and there
is no fact existing on or prior to the Closing Date which, under current
circumstances, is likely in the future to adversely affect, the Company, its
operations or its properties in any respect which has not been set forth or
referred to in this Agreement.
3.27. Company Transactions. Except as set forth on Schedule 3.27, the
Company has entered into all transactions with the Sellers or other related
parties on an arms length basis.
21
3.28. Manufacturing Business. Schedule 3.28 contains a complete
listing and description of all assets of the Company used or relating to the
Company manufacturing operations (i.e., the prototype and production of
mechanical and electrical components for ground platforms for government and
commercial customers, including the fabrication and testing of electrical cables
and wire harnesses, transit systems and sheet metal, as well as related
engineering design and drafting, material control/inventory, quality assurance,
and shipping of end products) conducted at the Company's facility located at
00-00 Xxxxxxxx Xxxx, Xxxxxxxxx, Xxx Xxxxxx or elsewhere (the "Manufacturing
Business"), and a complete listing and description of all liabilities or other
obligations of the Company relating to the Manufacturing Business. Except for
the liabilities listed on Schedule 3.28, the Company has no liabilities or
obligations of any kind, known or unknown, whether accrued, absolute, contingent
or otherwise, that relate to the Manufacturing Business.
3.29. Stock Purchase and Redemption (May 2002). The representations
with respect to the Company that were contained in Section 7 of the Stock
Purchase and Redemption Agreement dated as of May 13, 2002 among the Company and
the other parties thereto were true and correct when made.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Sellers at the date hereof as set forth below:
4.1. Power, Authorization and Validity. The Buyer has the right,
power, legal capacity and authority to enter into and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party.
The execution and delivery of this Agreement and the other Transaction Documents
have been, or will have been prior to the Closing, duly and validly approved and
authorized by the board of directors of the Buyer. No authorization or approval,
governmental or otherwise, is necessary in order to enable the Buyer to enter
into and to perform the terms of this Agreement or the other Transaction
Documents on its part to be performed. This Agreement is, and the other
Transaction Documents when executed and delivered by the Buyer shall be, the
valid and binding obligations of the Buyer enforceable in accordance with their
respective terms.
4.2. No Violation of Existing Agreements. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or result in a material breach or violation of, any
provision of the Buyer's Articles of Incorporation, or its Code of Regulations ,
as currently in effect, any material instrument or contract to which the Buyer
is a party or by which it is bound, or any federal, state or local judgment,
writ, decree, order, statute, rule or regulation applicable to it, the violation
of which would have a material adverse effect.
4.3. Securities Act. The Buyer acknowledges that the Shares has not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and are being acquired by it in a transaction exempt from the
registration requirements thereof. The Buyer is acquiring the Shares for its own
account for the purpose of investment and not with a view to any distribution,
or participation in any distribution, of the Shares. The Buyer will not offer,
sell, transfer or otherwise dispose of any Shares or any interest therein except
in accordance with the Securities Act.
22
5. Buyer's Conditions to Closing. The Buyer's obligations under this
Agreement are subject to the fulfillment or waiver as of the Closing of the
following conditions:
5.1. Representations and Warranties Correct. The representations and
warranties made by the Sellers in Section 3 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the date hereof and on the Closing Date with the same force and
effect as if they had been made on and as of said dates.
5.2. No Adverse Change. There shall not have occurred any material
adverse change in the financial condition, properties, assets (including the
Company Products and any other intangible assets), liabilities, business,
operations, or results of operations or prospects of the Company from the date
hereof to the Closing Date.
5.3. No Litigation. There shall not be pending any legal proceeding:
(a) challenging or seeking to restrain or prohibit the consummation of the
Acquisition or any of the other transactions contemplated by this Agreement or
the Transaction Documents; (b) relating to the Acquisition and seeking to obtain
from the Buyer or the Company any damages or other relief that would be material
to the Buyer or the Company; (c) seeking to prohibit or limit in any respect the
Buyer's ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the Shares; or (d) which would affect adversely
the right of the Buyer or the Company to (i) own the assets of the Company, (ii)
own the Company Products (including any intangible assets), or (iii) operate the
business of the Company.
5.4. Third Party Consents. All consents or approvals required to be
obtained in connection with the Acquisition and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
5.5. Performance of Obligations. The Sellers shall have performed and
complied in all respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Closing.
5.6. Certificate of Sellers. The Buyer shall have received a
certificate executed on behalf of the Company by the Sellers and the officers of
the Company certifying that the conditions set forth in this Section 5 and
Section 7 hereof have been satisfied.
5.7. Termination of Options. Each of the Optionholders shall enter
into an agreement pursuant to which all the Options shall terminate at Closing
and a release of all claims against the Company with respect to the Options in
form and substance acceptable to the Buyer.
5.8. Employment Agreements. Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxx shall
each execute an Employment Agreement in substantially the form attached hereto
as Exhibit 5.8. The existing employment agreements between the Company and each
of Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxx shall terminate as of the Closing Date,
and no terms or conditions of such agreements shall survive termination.
5.9. Intentionally omitted.
23
5.10. Sellers' Authority. The Sellers shall have full legal authority
to sell the Shares to the Buyer and to consummate the transactions under this
Agreement and under the Transaction Documents.
5.11. Regulatory Approvals. The Company, the Sellers and the Buyer, as
required, shall have obtained all regulatory approvals necessary to the
consummation of the Acquisition.
5.12. Dividends and Bonuses. During the period beginning October 1,
2003 and ending on the Closing Date, the Company shall not have (a) declared or
distributed cash dividends to the holders of the Shares, and (b) paid bonuses to
its employees except as disclosed on Schedule 5.12.
5.13. Opinion. The Buyer shall have received an opinion from counsel
for the Company and the Sellers, satisfactory to the Buyer, as to matters set
forth on Schedule 5.13.
5.14. Securities Laws. All the transactions contemplated under this
Agreement and the Transaction Documents shall comply with applicable federal and
state securities laws.
5.15. Divestiture of Manufacturing Business. Immediately prior to the
Closing, the Company shall have consummated the sale or transfer of all of the
assets that comprise the Manufacturing Business to a third party (the
"Purchasing Entity") or an entity formed and owned by the Sellers ("Newco") on
terms and conditions that are reasonably satisfactory to the Buyer, and the
Purchasing Entity or Newco and the Sellers shall have assumed all of the
obligations of the Company relating to the Manufacturing Business, whether known
or unknown, whether accrued, absolute, contingent or otherwise (the
"Manufacturing Liabilities") on terms and conditions reasonably satisfactory to
the Buyer.
5.16. Resignations. The directors and officers of the Company shall
resign their positions as of the Closing Date, other than Xxxxxxx X. Clinque and
Xxxxx X. Xxxxx who shall remain as officers of the Company.
5.17. Payment of Debt and Lien Releases. At the Closing, the Sellers
shall repay all of the Company's outstanding indebtedness to its secured lender
and cause the immediate release of all liens against the Company's assets
securing that indebtedness. Prior to Closing, the Company shall pay the bonuses
disclosed in Schedule 3.6(p) in the amount of $370,300.
5.18. Assignment of Patent Application. Prior to Closing, the Company
shall obtain an assignment of the patent application described in Section
3.8(a).
5.19. Consulting Agreements. At the Closing, the Consulting Agreements
between the Company and each of Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx, Xx.
shall terminate and the Company shall have no further obligations under such
agreements after the Closing Date.
24
6. Sellers' Conditions to Closing.
The Sellers' obligations under this Agreement are subject to the
fulfillment or waiver as of the Closing of the following conditions:
6.1. Representations and Warranties Correct. The representations and
warranties made by the Buyer in Section 4 hereof shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects on the Closing Date with the same force and effect as if they had been
made on and as of said date.
6.2. Employment Agreements. The Company shall execute an Employment
Agreement with each of Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxx, respectively, in
substantially the form attached hereto as Exhibit 5.8.
6.3. Certificate of President. The Sellers shall have received a
certificate executed on behalf of the Buyer by its president certifying that the
conditions set forth in this Section 6 and Section 7 have been satisfied.
6.4. Performance of Obligations. The Buyer shall have performed and
complied in all respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Closing.
6.5. Board Approval. The board of directors of the Buyer shall have
approved this Agreement and the Transaction Documents.
6.6. Opinion. The Sellers shall have received an opinion from counsel
for the Buyer, satisfactory to the Sellers, as to matters set forth on Schedule
6.6.
7. Mutual Covenants.
7.1. Confidentiality. The Parties agree that the terms and conditions
of the Confidentiality Agreement dated May 9, 2003 between the Buyer and the
Company, a copy of which is attached as Exhibit 7.1, will remain in full force
and effect.
7.2. Public Announcement. The Parties shall make no public
announcement concerning this Agreement prior to Closing without the prior
written consent of all of the other Parties. A Party may make disclosure if
required or, in the reasonable judgment of such Party or his or its counsel,
advisable under applicable law or regulation or any applicable rules and
regulations of a national securities exchange.
7.3. Tax Returns. For all periods up to and including the Effective
Date, the Sellers shall have the exclusive authority to prepare and file, or
cause to be prepared and filed, all Tax Returns previously unfiled by the
Company for such periods, provided, however, that no such Tax Returns shall be
filed without the prior written consent of the Buyer, which consent shall not be
unreasonably withheld. After the Closing Date, the Buyer shall have the
exclusive authority to prepare and file, or cause to be prepared and filed, all
Tax Returns of the Company. The Buyer may amend any previously filed returns
upon the Sellers' written consent. From the date of this Agreement and prior to
the Closing, neither the Sellers nor the Company nor any
25
person acting on their or its behalf shall file or cause to be filed any amended
Return without the prior written consent of the Buyer, which consent shall not
be unreasonably withheld. Sellers shall be responsible for paying all Taxes
relating to the Company through the Closing Date, including those relating to
the final Closing Date tax return prepared on the accrual basis.
7.4. Further Assurances. Following the Closing, each Party agrees to
cooperate fully with the other Parties and to execute such further instruments,
documents and agreements and to give such further written assurances, as may be
reasonably requested by any other Party at that other Party's cost to give
effect to the transactions described herein and contemplated hereby. Sellers
will use best efforts to cooperate with the Buyer and to discuss the Financial
Statements, the internal controls of the Company and the disclosure controls and
procedures of the Company in connection with the Buyer's efforts to comply with
the rules and regulations affecting public companies, including without
limitation, the Xxxxxxxx-Xxxxx Act of 2002 and any rules and regulations
relating thereto.
7.5. Conduct of the Company's Business. The Sellers covenant and agree
that, prior to the Closing Date, unless the Buyer shall otherwise consent in
writing or as otherwise expressly contemplated by this Agreement:
(a) Except for any sale or winding down of the Company's
manufacturing facility expressly permitted under the terms of this Agreement,
the business of the Company shall be conducted only in, and the Company shall
not take any action except in, the ordinary course of business consistent with
past practice and the Company shall use its best efforts to preserve intact its
present business organization, keep available the services of its current
officers and employees, maintain its assets (other than those permitted to be
disposed of hereunder) in good repair and condition, maintain its books of
account and records in the usual, regular and ordinary manner and preserve its
goodwill and ongoing business;
(b) The Company shall not directly or indirectly do any of the
following: (i) issue, sell, pledge, dispose of or encumber (A) any capital stock
of the Company, or (B) any property or assets of the Company except inventory
and immaterial assets in the ordinary course of business consistent with past
practice; (ii) amend or propose to amend its Certificate of Incorporation or
By-laws; (iii) split, combine or reclassify any outstanding shares of its
capital stock, or declare, set aside or pay any dividend payable in cash, stock,
property or otherwise with respect to such shares except with the written
consent of the Buyer; (iv) redeem, purchase, acquire or offer to acquire any
shares of its capital stock; or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth in this
paragraph (b);
(c) Except for any sale or winding down of the Company's
manufacturing facility expressly permitted under the terms of this Agreement,
the Company shall not (i) issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or securities convertible
or exchangeable for, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock of any class or other property or assets; (ii)
acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership or other business organization or division thereof or
any amount of assets; (iii) incur or guarantee any indebtedness for borrowed
money or refinance any such indebtedness or issue or sell any debt
26
securities; (iv) enter into or modify any contract, lease, agreement or
commitment, or permit or perform any act that would cause a breach of any such
contract, lease, agreement or commitment; (v) terminate, modify, assign, waive,
release or relinquish any contract rights or amend any rights or claims; (vi)
discharge or satisfy any claim or settle or compromise any claim, action, suit
or proceeding pending or threatened against the Company, or, if the Company may
be liable or obligated to provide indemnification, against the Company's
directors or officers, before any court, governmental agency or arbitrator;
(vii) make any loans, advances or capital contributions to or investments in,
any other person, (viii) alter through merger, liquidation, reorganization,
restructuring or in any other manner the corporate structure or ownership of the
Company; or (ix) violate or fail to perform, in any respect, any obligation
imposed upon the Company by any applicable laws, orders or decrees, ordinances,
government rules or regulations or conciliation agreements;
(d) The Company shall not grant any increase in the salary or
other compensation of its directors, officers or employees, except reasonable
salary increases, in the case of employees who are not directors or executive
officers of Company, in the ordinary course of business consistent with past
practice, or grant any bonus to any employee or enter into any employment
agreement or make any loan to or enter into any transaction of any other nature
with any employee of the Company, except reasonable bonuses in the ordinary
course of business consistent with past practice;
(e) The Company shall not take any action to institute any new
severance or termination pay practices with respect to any directors, officers
or employees of the Company or to increase the benefits payable under its
severance or termination pay practices;
(f) The Company shall not adopt or amend, in any respect except
as disclosed in writing to Buyer, any Plan; and
(g) The Company shall use its best efforts, to the extent not
prohibited by the foregoing provisions of this Section 7.5, to maintain its
relationships with its suppliers and customers or clients and others having
business dealings with it, and if and as requested by the Buyer, (i) the Company
shall use its best efforts to make reasonable arrangements for representatives
of the Buyer to meet with customers and suppliers of the Company, and (ii) the
Company shall schedule, and the management of the Company shall participate in,
meetings of representatives of the Buyer with employees of the Company.
7.6. Exclusivity. The Parties agree that the terms and conditions of
the letter agreement dated August 14, 2003, a copy of which is attached as
Exhibit 7.6, shall remain in full force and effect.
7.7. Section 338(h)(10).
(a) Buyer and Sellers agree, with respect to the acquisition of
the Shares pursuant to this Agreement, to prepare and file the election provided
by Section 338(h)(10) of the Code and any comparable election under state,
county, or local law (collectively and separately the "Election"). Each Party
shall provide to the other all information necessary to permit the making of the
Election. Buyer and Sellers shall, no later than thirty (30)
27
days prior to the last date for filing a timely Election, execute and file
Internal Revenue Service Form 8023 and all other forms, returns, elections,
schedules and documents as may be required to effect and preserve a timely
Election.
(b) In connection with the Election and no later than thirty (30)
days prior to the last date for filing a timely Election, Buyer and Sellers
shall act together in good faith to (i) determine and agree upon the amount of
the "adjusted grossed-up basis" of the Company's assets (within the meaning of
Treasury Regulations adopted under Section 338(h)(10), and (ii) agree upon the
proper allocation of the adjusted grossed-up basis among the Company's assets in
accordance with the Code and the Treasury Regulations promulgated thereunder
(the "Allocation"). Unless otherwise agreed to by the parties, the Allocation
shall be determined based upon the approach as indicated on Schedule 7.7(b) and
the calculations of the adjusted grossed-up basis and the Allocation shall not
include the respective legal, accounting and other fees or costs incurred by
each of Buyer and Sellers as a result of the transactions contemplated by this
Agreement ("Transaction Costs"). The Sellers shall calculate the gain or loss,
if any, resulting from the Election in a manner consistent with the Allocation
and the amount of the adjusted grossed-up basis and will not take any position
inconsistent with the Election, the Allocation or the amount of the adjusted
grossed-up basis in any tax return or otherwise; provided, however, that Sellers
shall be entitled to take into account their Transaction Costs when calculating
such gain or loss. Buyer shall allocate the adjusted grossed-up basis among the
Company's assets in a manner consistent with the Allocation and will not take
any position inconsistent with the Election, the Allocation or the amount of the
adjusted grossed-up basis in any tax return or otherwise; provided, however,
that the Buyer shall be entitled to add its Transaction Costs to the adjusted
grossed-up basis for purposes of allocating such adjusted grossed-up basis among
the Company's assets.
(c) Upon making the Election, Buyer shall pay to Sellers as
additional consideration for the Shares, and shall hold the Sellers harmless
from, the amount, if any, of (i) the Sellers' additional tax liability
attributable to the making of the Election (i.e. the excess, if any, of each
Seller's tax liability resulting from the application of Section 338(h)(10) over
the Seller's tax liability that would have resulted from the sale of the
Seller's Shares in the absence of the Election or attributable to an election
under state, local or foreign law similar to the election available under
Section 338(h)(10) of the Code, plus (ii) each Seller's additional tax liability
(net of any tax benefit to the Seller' as a result thereof, including any
federal tax deductions for state and local taxes) resulting from all payments
made to such Seller under this Section 7.7(c).
7.8. Closing Date Balance Sheet. Prior to the Closing, Sellers shall
cause the Company to take all actions necessary to ensure that as of the Closing
Date (a) the Company has no liabilities relating to interest bearing debt, and
(b) no assets or liabilities relating to the Company's manufacturing operations.
7.9. Divestiture of Manufacturing Business. Immediately prior to the
Closing, the Company shall sell and transfer all right, title and interest in
all of the assets that comprise the Manufacturing Business to the Purchasing
Entity or Newco on terms and conditions that are reasonably satisfactory to the
Buyer, and the Purchasing Entity or Newco and the Sellers shall assume all of
the Manufacturing Liabilities on terms and conditions reasonably satisfactory to
the Buyer.
28
7.10. October 24, 2003 Balance Sheet. Within thirty (30) days after
the Closing Date, the Sellers shall have prepared and delivered to the Buyer an
unaudited balance sheet of the Company as of October 24, 2003, together with a
certification signed by the Sellers to the effect that said balance sheet was
prepared in accordance with generally accepted accounting principles
consistently applied and in accordance with the Company's historical practices.
7.11. Employees of the Company.
(a) As of and subsequent to the Closing Date, all employees of
the Company will retain their seniority and shall receive benefits that are
comparable to those provided by the Buyer and its affiliates to their employees;
provided, however, that the Buyer retains the right to amend or make changes to
any such benefits in its sole discretion. In addition, the Company and the Buyer
shall honor and assume the liabilities arising out of the Company's employees'
rights in respect of accrued paid time off and extended illness bank and give
each employee credit therefor and recognize the tenure of each employee while an
employee of the Company prior to the Closing Date for purposes of determining
benefits available to employees under the Company's or the Buyer's employee
benefit plans subsequent to the Closing Date (which will include a waiver of
pre-existing condition exclusions for employees and their dependents and
recognition of or credit for all deductibles paid by such employees during the
current period while in the employ of the Company). Without limiting the
foregoing, the Company and the Buyer shall provide credit for eligibility,
benefit accrual and vesting for all such employees' periods of service with the
Company for purposes of any of the Company's or the Buyer's employee benefit
plans subsequent to the Closing Date, including all qualified and non-qualified
retirement or saving programs, vacation, sick leave, holiday and severance
benefits. Nothing contained herein shall be construed to or shall create any
right to continued employment on the part of any employee of the Company or
alter the "at will" status of any employee of the Company. After the Closing,
the Buyer intends to form a joint committee with representatives of each of the
Company and the Buyer in order to solicit recommendations to management
concerning the types of benefits that may be offered to employees of both
companies consistent with the types of benefits offered in the industry or
marketplace.
(b) Subsequent to the Closing Date, the Company shall continue to
comply with the coverage obligations (within the meaning of Code Section 4980B
and Part 6 of Subtitle B of Title 1 of ERISA) in respect of any former employee
of the Company who is eligible to receive continuation coverage.
8. Agreement to Indemnify.
8.1. Sellers' Indemnity. The Sellers will jointly and severally
indemnify and hold harmless the Buyer against, and reimburse the Buyer on demand
for, any liability, damage, loss, obligation, demand, judgment, fine, penalty,
cost or expense (including reasonable attorneys' fees and expenses, and the
costs of investigation incurred in defending against or settling such liability,
damage, loss, cost or expense or claim therefor and any amounts paid in
settlement thereof) imposed on or reasonably incurred by the Buyer because of
(a) any misrepresentation or breach of any representation or warranty of the
Sellers under this Agreement, (b) any breach of any agreement, obligation or
covenant set forth herein on the part
29
of the Sellers, (c) the failure of the Company to pay any Taxes that are not
accrued for on the Financial Statements, including any obligations of the Buyer
imposed as a result of the Company's ineligibility to make an election under
Section 338(h)(10) of the Code and corresponding state laws and any failure of
the Sellers to pay income taxes due through the Closing Date on the accrual
basis, (d) the Company's conversion from the cash basis of accounting to the
accrual basis of accounting for purposes of Tax Return preparation and filing
(e) the Purchasing Entity, Newco or the Sellers' failure to satisfy or discharge
any of the Manufacturing Liabilities, and (f) the January 2001 accident (the
"HMMWV Accident") involving three High Mobility Multipurpose Wheeled Vehicles
and shelters which were being delivered (such delivery arranged by the Company)
to a U.S. government facility in San Diego, California (collectively, the
"Buyer's Damages"). "Buyer's Damages" as used herein is not limited to matters
asserted by third parties, but includes damages incurred or sustained by the
Buyer in the absence of claims by a third party. To the extent permitted by law,
the Buyer shall have the right to set off any Buyer's Damages incurred against
any amounts due from Buyer to Sellers under this Agreement or otherwise;
provided, however, that, the procedures and limitations set forth in this
Section 8 have been fully complied with prior to any such set off.
The Sellers shall have no obligation to indemnify the Buyer in respect
of any of the Buyer's Damages resulting from circumstances described in clauses
(a) and (b) above until the aggregate amount of such Buyer's Damages exceeds
$100,000 (the "Minimum Threshold Requirement"), and then Sellers shall be liable
for the entire amount of such Buyer's Damages.
Notwithstanding anything else herein to the contrary, the Sellers
shall only be obligated under this Agreement for the aggregate amount of Buyer's
Damages which does not exceed the aggregate Purchase Price paid by the Buyer to
the Sellers and the Optionholders, including any earn-out payments, for all of
the outstanding securities of the Company, except to the extent that Buyer's
Damages result from the circumstances described in clauses (e) and (f) above, in
which case there shall be no limitation on Sellers' obligation to indemnify the
Buyer hereunder.
8.2. Buyer's Indemnity. The Buyer will indemnify and hold harmless the
Sellers against, and reimburse the Sellers on demand for, any liability, damage,
loss, obligation, demand, judgment, fine, penalty, cost or expense (including
reasonable attorneys' fees and expenses, and the costs of investigation incurred
in defending against or settling such liability, damage, loss, cost or expense
or claim therefor and any amounts paid in settlement thereof) imposed on or
reasonably incurred by the Sellers because of (a) any misrepresentation or
breach of any representation or warranty of the Buyer under this Agreement, (b)
any breach of any agreement, obligation or covenant set forth herein on the part
of the Buyer (c) the failure of the election contemplated in Section 7.7 hereof
if such failure is caused by the Buyer, and (d) any claims made against the
Company for matters occurring after the Closing to the extent not caused by
Sellers (collectively, the "Sellers' Damages"). "Sellers' Damages" as used
herein is not limited to matters asserted by third parties, but includes damages
incurred or sustained by the Sellers in the absence of claims by a third party.
8.3. Procedures Regarding Indemnity Party Claims. The procedures to be
followed by the Buyer and the Sellers with respect to indemnification claims
shall be as follows:
30
(a) Notices. Whenever any claim shall arise or any proceeding
shall be instituted by the Buyer or the Sellers pursuant to this Section 8.3,
(the "Indemnified Party") shall promptly notify the person(s) against whom such
indemnity may be sought (the "Indemnifying Party") in writing and, when known,
the facts constituting the basis for such claim or proceeding and the amount or
an estimate of the amount of the indemnified liability arising therefrom, if
known. In addition, each Party hereto hereby agrees to provide to the other
Parties written notification and copies of communication from third parties
received or made by such parties relating to any matter subject to any
indemnification hereunder. The failure by an Indemnified Party to timely furnish
to the Indemnifying Party any notice or copy required to be furnished under this
Section 8.3 shall not relieve the Indemnifying Party from any responsibility for
the matters relating to such notice or copy, unless such failure materially
adversely prejudices the ability of the Indemnifying Party to defend such
matter.
(b) Defense of Claims. In connection with any claim giving rise
to indemnity hereunder arising out of any claim or legal proceeding by any
person who is not an Indemnified Party, the Indemnifying Party at its or his
sole cost and expense may, upon written notice to the Indemnified Party, elect
to assume the defense of any such claim or legal proceeding; provided, however,
that if the amount of the claim exceeds the Indemnifying Party's indemnification
obligations hereunder, the Indemnified Party may elect to defend such claim or
legal proceeding, in which case the Indemnifying Party may participate in but
not control the defense of such action, with its or his counsel and at its or
his own expense. If the Indemnifying Party has so elected to assume the defense
of any such claim or legal proceeding, such defense shall be conducted by
counsel chosen by the Indemnifying Party, provided that such counsel is
reasonably satisfactory to the Indemnified Party. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its or his counsel and at its or his own expense. If the Indemnifying Party
has elected to assume the defense of any claim or legal proceeding as provided
herein, the Indemnified Party shall not be entitled to indemnification as to
fees and expenses of any counsel retained by the Indemnified Party after the
time at which the Indemnifying Party has so elected unless the Indemnifying
Party consents thereto in writing.
(c) Settlement or Compromise of Indemnified Liability. The
Indemnified Party shall not settle or compromise any indemnified liability if
such settlement or compromise affects the rights of the Indemnifying Party
without the prior written consent of the Indemnifying Party, which consent shall
not be unreasonably withheld. In the event that the Indemnifying Party shall so
assume such defense, it or he shall not compromise or settle any such claim,
action, or suit if such settlement affects the rights or obligations of the
Indemnified Party unless:
(i) the Indemnified Party gives its or his prior written
consent, which shall not be unreasonably withheld; or
(ii) (A) the terms of the compromise or settlement of such
claim, action, or suit provide that the Indemnified Party shall have no
responsibility for the discharge of the settlement amount and impose no other
obligations or duties on the Indemnified Party, (B) the compromise or settlement
discharges all rights against the Indemnified Party with respect to such claim,
action, or suit, and (C) in the event of a settlement or compromise pursuant
31
to an agreed judgment, the Indemnified Party has not, within twenty (20) days
after having received notice of the proposed compromise or settlement from the
Indemnifying Party, given the Indemnifying Party notice that it or he reasonably
believes the settlement or compromise will jeopardize its or his ability to
prevail on issues similar to the issues that are the subject of such claim,
action, or suit.
(d) Notwithstanding anything to the contrary contained in any of
the other provisions of this Section 8.3, the Sellers shall be responsible, at
their own cost and expense, to resolve all matters regarding the HMMWV Accident
and shall defend, at their cost and expense, the Company against any claim or
action regarding the HMMWV Accident. In the resolution of any matter regarding
the HMMWV Accident or the defense of the Company with respect to any claim or
action resulting therefrom, the Sellers shall select the counsel to assist or
defend the Sellers and/or the Company, as the case may be, provided that such
counsel is reasonably satisfactory to the Buyer. In the event that any liability
is assessed against the Company in favor of any third party in connection with
the HMMWV Accident, the Sellers jointly and severally agree to pay the amount of
such liability directly to such third party. In addition, the Sellers agree to
pay directly the costs and expenses of defending or settling all claims relating
to the HMMWV Accident, including all attorneys' fees. The Buyer and the Company
shall have the right to monitor and be involved in the defense of all matters
relating to the HMMWV Accident and shall receive copies of all correspondence,
pleadings and other documents relating thereto.
8.4. Limitation on Claims. Nothing herein shall limit any potential
remedies and liabilities of the Buyer arising under applicable state and federal
laws with respect to any fraudulent act committed by the Sellers or director,
officer, employee or agent of the Company. Nothing herein shall limit any
potential remedies and liabilities of the Sellers arising under applicable state
and federal laws with respect to any fraudulent act committed by the Buyer.
8.5. Survival of Representations and Warranties. All representations,
warranties, covenants, and obligations in this Agreement, the Schedules, and any
certificates delivered pursuant to this Agreement will survive after the date
hereof for the period set forth herein. The representations and warranties set
forth in Sections 3.2 (Capitalization) , 3.3 (Power, Authority and Validity),
3.28 (Manufacturing Business)and 4.1 (Power, Authority and Validity) shall
survive indefinitely. The representations and warranties set forth in Sections
3.5 (Tax Matters), 3.7 (Title and Related Matters), 3.8 (Intellectual
Proprietary Rights), 3.19(Governmental Authorizations and Regulations), and 3.24
(Employee Benefit Plans) shall survive for the applicable statute of limitations
period after the Closing Date. The representations and warranties of the set
forth in Sections 3.1 (Organization), 3.4 (Financial Statements), 3.9 (Bank
Accounts), 3.10 (Contracts), 3.11(Orders, Commitments and Returns), 3.12
(Compliance With Other Instruments and Laws), 3.13 (Labor Difficulties; No
Discrimination), 3.16 (Independent Contractors and Consultants), 3.17
(Insurance), 3.20 (Subsidiaries), 3.22 (Corporate Documents), 3.23 (No Brokers),
3.27 (Company Transactions) and 4.2 (No Violation of Existing Agreements) shall
survive for a period of twenty-four months after the Closing Date.
Notwithstanding the above, the Sellers obligations to indemnify the Buyer under
Sections 8.1 (e) and (f) shall survive indefinitely. The covenants and
obligations set forth in this Agreement shall survive indefinitely, unless
otherwise limited by their terms. The right to indemnification, payment of
damages or other remedy based on such representations,
32
warranties, covenants, and obligations will not be affected by any investigation
conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement or the Closing Date, with respect to the accuracy or inaccuracy
of any representation or warranty, or on the performance of or compliance with
any covenant or obligation, will not affect the right to indemnification,
payment of damages, or other remedy based on such representations, warranties,
covenants, and obligations.
8.6. Limitation on Indemnification. The indemnification provided for
in this Section 8 shall be subject to the limitations that the Indemnifying
Party shall not be obligated to pay any amount for indemnification hereunder
relating to a claim to the extent of (a) any net tax benefit to the Indemnified
Party which is realized by the Indemnified Party after taking into account all
tax consequences, including any additional income or other taxes payable as a
result of the indemnification, or (b) any indemnity, insurance, contribution or
similar payment paid to the Indemnified Party from any third party with respect
thereto.
9. Miscellaneous.
9.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Ohio or any other jurisdiction) that would cause the application of the laws of
any other jurisdiction.
9.2. Binding upon Successors. Subject to, and unless otherwise
provided in, this Agreement each and all of the covenants, terms, provisions and
agreements contained herein shall be binding upon, and inure to the benefit of,
the successors, executors and heirs of the Parties. Except as contemplated
herein, none of the Parties may assign the benefit of any of its or his rights
under this Agreement to any other person.
9.3. Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the Parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
9.4. Entire Agreement. This Agreement, the exhibits hereto, the
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the Parties with respect hereto and thereto, including, but not
limited to the letter agreement dated August 15, 2003 among the Buyer, the
Sellers and the Company. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
33
9.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any Party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the Parties reflected hereon as signatories.
9.6. Expenses. The Parties shall each pay their own legal, accounting,
financial advisory and consulting fees and other out-of-pocket expenses related
to the negotiation, preparation and carrying out of this Agreement and the
transactions herein contemplated.
9.7. Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the Party to be bound thereby. The
waiver by a Party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
9.8. Release by the Sellers. Following the Closing, the Sellers agree
that they shall have no claim against the Company for matters occurring prior to
the Closing Date, except for any claim provided for herein, including Section
7.11 hereof, and any claim for indemnification provided in the Company's
Certificate of Incorporation or By-laws, and hereby release the Company from any
and all current or future claims arising against the Company for matters
occurring prior to the Closing Date, except for any claim provided for herein,
including Section 7.11 hereof, and any claim for indemnification provided in the
Company's Certificate of Incorporation or By-laws. Notwithstanding the above, in
no event shall the Company be obligated to indemnify the Sellers in connection
with any claim for which the Buyer is entitled to be indemnified by the Sellers
under Section 8 of this Agreement.
9.9. No Waiver. The failure of any Party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
9.10. Notices. Any notice provided for or permitted under this
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other Party have been notified in accordance with the provisions of this Section
9.10.
Sellers: Xxxxxxx X. Xxxxxx
00 Xxxxxx Xxxxxx
Xxxxxxx Xxxxx, Xxx Xxxxxx 00000
Xxxxxxx X. Xxxxxx
00 Xxxxxxxxxx Xxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
34
Xxxxx X. Xxxxx
000 Xxxxxxxx Xxxxxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
With copy to: Xxxxxxxx, Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
X.X. Xxx 000
Middletown, New Jersey 07748
Attn: Xxxx X. Xxxxxxx, Esq.
Buyer: MTC Technologies, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxx, Xxxx 00000-0000
Attn: Xxxxx Xxxxxxxx
With copy to: Coolidge, Wall, Xxxxxxx & Xxxxxxx
Xxxxx 000
00 Xxxx Xxxxx Xxxxxx
Xxxxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Such notice will be treated as having been received upon actual receipt.
9.11. Construction of Agreement. The titles and headings herein are
for reference purposes only and shall not in any manner limit the construction
of this Agreement, which shall be considered as a whole. This Agreement has been
reviewed and negotiated by the Parties and their respective counsel, and the
Parties desire that this Agreement be interpreted without reference to any
principle of construction based upon conclusions regarding responsibility for
drafting. For purposes of this Agreement, Sellers' "knowledge" shall mean the
actual knowledge of any of the Sellers after due investigation and inquiry of
the facts and issues involved and the key personnel responsible for the matter
in question.
9.12. No Joint Venture. Nothing contained in this Agreement shall be
deemed or construed as creating a joint venture or partnership between any of
the Parties hereto. No Party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other Party. No Party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No Party shall have any power or authority to bind or
commit any other. No Party shall hold itself out as having any authority or
relationship in contravention of this Section 9.12.
9.13. Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
9.14. Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary
35
rights or any other rights of any kind in any client, customer, affiliate,
shareholder, partner of any party hereto or any other person or entity unless
specifically provided otherwise herein, and, except as so provided, all
provisions hereof shall be personal solely between the Parties to this
Agreement.
9.15. Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by mutual consent of the Buyer and the Sellers;
(b) by the Sellers, if the conditions set forth in Section 6
shall not have been complied with or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by the Buyer on or before November 7, 2003; or
by the Buyer, if the conditions set forth in Section 5 shall not have been
complied with or performed and such noncompliance or nonperformance shall not
have been cured or eliminated (or by its nature cannot be cured or eliminated)
by the Sellers on or before November 7, 2003.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
"SELLERS"
/s/ Xxxxxxx X. Xxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxx
/s/ M.A. Cinque
----------------------------------------
Xxxxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxx
----------------------------------------
Xxxxx X. Xxxxx
"PURCHASER"
MTC Technologies, Inc.
By: /s/ Xxxxxxx Xxxxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxxxx
Title: Chief Financial Officer
37